Statement on Prediction Markets

8 Pages Posted: 7 May 2007

See all articles by Kenneth J. Arrow

Kenneth J. Arrow

Stanford University - Department of Economics

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Robert Forsythe

University of South Florida - College of Business

Robert E. Litan

Council on Foreign Relations (CFR) - Council on Foreign Relations- Washington D.C.

Eric Zitzewitz

Dartmouth College; NBER

Michael Gorham

Illinois Institute of Technology

Robert W. Hahn

Technology Policy Institute; University of Oxford, Smith School

Robin Hanson

George Mason University; Oxford University - Future of Humanity Institute

Daniel Kahneman

Princeton University

John O. Ledyard

California Institute of Technology - Division of the Humanities and Social Sciences

Saul Levmore

University of Chicago Law School

Paul R. Milgrom

Stanford University

Forrest D. Nelson

University of Iowa - Henry B. Tippie College of Business - Department of Economics

George R. Neumann

University of Iowa - Henry B. Tippie College of Business - Department of Economics

Marco Ottaviani

Bocconi University - Department of Economics

Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences

Thomas C. Schelling

University of Maryland

Robert J. Shiller

Yale University - Cowles Foundation; National Bureau of Economic Research (NBER); Yale University - International Center for Finance

Vernon L. Smith

Chapman University - Economic Science Institute; Chapman University School of Law

Erik C. Snowberg

Independent

Cass R. Sunstein

Harvard Law School; Harvard University - Harvard Kennedy School (HKS)

Paul C. Tetlock

Columbia Business School - Finance

Philip E. Tetlock

University of California, Berkeley - Organizational Behavior & Industrial Relations Group; University of Pennsylvania - Management Department

Hal R. Varian

School of Information; University of California, Berkeley - Operations and Information Technology Management Group; National Bureau of Economic Research (NBER)

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; The University of Sydney - Discipline of Economics; Brookings Institution - Economic Studies Program; Peterson Institute for International Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

Date Written: May 2007

Abstract

Prediction markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as a presidential election. Using these markets as forecasting tools could substantially improve decision making in the private and public sectors.

We argue that U.S. regulators should lower barriers to the creation and design of prediction markets by creating a safe harbor for certain types of small stakes markets. We believe our proposed change has the potential to stimulate innovation in the design and use of prediction markets throughout the economy, and in the process to provide information that will benefit the private sector and government alike.

Keywords: prediction markets, public policy, forecasting, regulation

JEL Classification: D61, D70

Suggested Citation

Arrow, Kenneth J. and Sunder, Shyam and Forsythe, Robert and Litan, Robert E. and Zitzewitz, Eric W. and Gorham, Michael and Hahn, Robert W. and Hanson, Robin and Kahneman, Daniel and Ledyard, John O. and Levmore, Saul and Milgrom, Paul R. and Nelson, Forrest D. and Neumann, George R. and Ottaviani, Marco and Plott, Charles R. and Schelling, Thomas C. and Shiller, Robert J. and Smith, Vernon L. and Snowberg, Erik C. and Sunstein, Cass R. and Tetlock, Paul C. and Tetlock, Philip E. and Varian, Hal R. and Wolfers, Justin, Statement on Prediction Markets (May 2007). AEI-Brookings Joint Center Related Publication No. 07-11, Available at SSRN: https://ssrn.com/abstract=984584 or http://dx.doi.org/10.2139/ssrn.984584

Kenneth J. Arrow

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
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Shyam Sunder

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
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203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation ( email )

Box 208281
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Robert Forsythe

University of South Florida - College of Business ( email )

Tampa, FL 33620-5500
United States
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813-974-3030 (Fax)

Robert E. Litan (Contact Author)

Council on Foreign Relations (CFR) - Council on Foreign Relations- Washington D.C. ( email )

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Eric W. Zitzewitz

Dartmouth College ( email )

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NBER ( email )

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Michael Gorham

Illinois Institute of Technology ( email )

Stuart Graduate School of Business
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Robert W. Hahn

Technology Policy Institute ( email )

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University of Oxford, Smith School ( email )

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Robin Hanson

George Mason University ( email )

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Daniel Kahneman

Princeton University ( email )

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John O. Ledyard

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

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University of Chicago Law School ( email )

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Paul R. Milgrom

Stanford University ( email )

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Forrest D. Nelson

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

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Iowa City, IA 52242
United States
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George R. Neumann

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

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Iowa City, IA 52242
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Marco Ottaviani

Bocconi University - Department of Economics ( email )

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Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

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Thomas C. Schelling

University of Maryland ( email )

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Robert J. Shiller

Yale University - Cowles Foundation ( email )

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New Haven, CT 06520-8281
United States
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HOME PAGE: http://www.econ.yale.edu/~shiller/

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Yale University - International Center for Finance ( email )

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Vernon L. Smith

Chapman University - Economic Science Institute ( email )

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Chapman University School of Law ( email )

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Erik C. Snowberg

Independent

Cass R. Sunstein

Harvard Law School ( email )

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United States
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Harvard University - Harvard Kennedy School (HKS) ( email )

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Paul C. Tetlock

Columbia Business School - Finance ( email )

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Philip E. Tetlock

University of California, Berkeley - Organizational Behavior & Industrial Relations Group ( email )

Berkeley, CA 94720
United States

University of Pennsylvania - Management Department ( email )

The Wharton School
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United States

Hal R. Varian

School of Information ( email )

UC Berkeley
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United States
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HOME PAGE: http://www.sims.berkeley.edu/~hal/people/hal/biography.html

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National Bureau of Economic Research (NBER)

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Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics ( email )

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