I am guessing there are many options, but I would like to know how the industry does it and which methods are the most popular. I am writing a short novel with 3 other friends and we haven't yet discussed in what order our names should appear, so I was wondering what you think we should do.
It must be by agreement among the authors. If one author is well known and the others are not, it is common to put the well-known author first, in the hope that this will improve sales. Some authors put the one who they think has done the most work on a book first. Some use alphabetical order, or some other arbitrary choice.
If the same pair or set of authors write multiple works together, it is probably wise to have their names in the same order on each such work, as their combined names come to be perceived as a unit, and recognized. Thus the Liaden books are all published as by Lee & Miller, not some by Miller & Lee.