Probability Forecasts and Prediction Markets

Julia Mortera and A. Philip Dawid

No 250, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: We give an overview of various topics tied to the expression of uncertainty about a variable or event by means of a probability distribution. We rst consider methods used to evaluate a single probability forecaster and then revisit methods for combining several experts' distributions. We describe the implications of imposing coherence constraints, based on a speci c understanding of \expertise". In the nal part we revisit from a statistical standpoint some results in the economics literature on prediction markets, where individuals sequentially place bets on the outcome of a future event. In particular we consider the case of two individuals who start with the same probability distribution but have di erent private information, and take turns in updating their probabilities. We note convergence of the announced probabilities to a limiting value, which may or may not be the same as that based on pooling their private information.

Keywords: consensus; expert opinion; information aggregation; probability forecast; sequential prediction (search for similar items in EconPapers)
JEL-codes: C18 C53 D70 D81 E37 G14 (search for similar items in EconPapers)
Pages: 27
Date: 2019-11
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Persistent link: https://EconPapers.repec.org/RePEc:rtr:wpaper:0250

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