Corporate Prediction Markets: Evidence from Google, Ford, and Firm X

Bo Cowgill and Eric Zitzewitz

The Review of Economic Studies, 2015, vol. 82, issue 4, 1309-1341

Abstract: Despite the popularity of prediction, markets among economists, businesses, and policymakers have been slow to adopt them in decision-making. Most studies of prediction markets outside the lab are from public markets with large trading populations. Corporate prediction markets face additional issues, such as thinness, weak incentives, limited entry, and the potential for traders with biases or ulterior motives—raising questions about how well these markets will perform. We examine data from prediction markets run by Google, Ford Motor Company, and an anonymous basic materials conglomerate (Firm X). Despite theoretically adverse conditions, we find these markets are relatively efficient, and improve upon the forecasts of experts at all three firms by as much as a 25% reduction in mean-squared error. The most notable inefficiency is an optimism bias in the markets at Google. The inefficiencies that do exist generally become smaller over time. More experienced traders and those with higher past performance trade against the identified inefficiencies, suggesting that the markets' efficiency improves because traders gain experience and less skilled traders exit the market.

Keywords: Market efficiency; Forecasting; Information sharing; Optimism bias; Overreaction; Underreaction; Wisdom of Crowds (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (55)

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdv014 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:82:y:2015:i:4:p:1309-1341.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().