Prediction Markets

Justin Wolfers and Eric Zitzewitz

No 10504, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We analyze the extent to which simple markets can be used to aggregate disperse information into efficient forecasts of uncertain future events. Drawing together data from a range of prediction contexts, we show that market-generated forecasts are typically fairly accurate, and that they outperform most moderately sophisticated benchmarks. Carefully designed contracts can yield insight into the market's expectations about probabilities, means and medians, and also uncertainty about these parameters. Moreover, conditional markets can effectively reveal the market's beliefs about regression coefficients, although we still have the usual problem of disentangling correlation from causation. We discuss a number of market design issues and highlight domains in which prediction markets are most likely to be useful.

JEL-codes: D7 D8 (search for similar items in EconPapers)
Date: 2004-05
New Economics Papers: this item is included in nep-fin
Note: EFG
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Citations: View citations in EconPapers (180)

Published as Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.

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Journal Article: Prediction Markets (2004)
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Working Paper: Prediction Markets (2004)
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