Prediction Markets in Theory and Practice
16 Pages Posted: 9 May 2006
There are 4 versions of this paper
Prediction Markets in Theory and Practice
Prediction Markets in Theory and Practice
Prediction Markets in Theory and Practice
Prediction Markets in Theory and Practice
Date Written: February 2006
Abstract
Prediction Markets, sometimes referred to as "information markets," "idea futures" or "event futures", are markets where participants trade contracts whose payoffs are tied to a future event, thereby yielding prices that can be interpreted as market-aggregated forecasts. This article summarizes the recent literature on prediction markets, highlighting both theoretical contributions that emphasize the possibility that these markets efficiently aggregate disperse information, and the lessons from empirical applications which show that market-generated forecasts typically outperform most moderately sophisticated benchmarks. Along the way, we highlight areas ripe for future research.
Keywords: economics of organizations, economic policy, markets, politics, public policy
JEL Classification: C53, D8, G14
Suggested Citation: Suggested Citation
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