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Prediction Markets in Theory and Practice

Justin Wolfers () and Eric Zitzewitz ()

No 12083, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C53 D8 G14 (search for similar items in EconPapers)
Date: 2006-03
Note: AP EFG
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Published as Blume, Larry and Steven Durlauf (eds.) The New Palgrave Dictionary of Economics, 2nd ed. London: Palgrave, 2008.

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Working Paper: Prediction Markets in Theory and Practice (2006) Downloads
Working Paper: Prediction Markets in Theory and Practice (2006) Downloads
Working Paper: Prediction Markets in Theory and Practice (2006) Downloads
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