Prediction markets: Theory, evidence and applications

Prediction Markets in Theory and Practice

Prediction Markets in Theory and Practice 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 b...

Efficiency in prediction markets, evidence from SciCast.org

Prediction markets have been proposed as an mechanism for collective information elicitation. We analyze data from SciCast, an online prediction market focused on events of scientific interest, to understand the predictive power of the prices to forecast events. Users receive a fixed number of points (5,000) when they join the site, and can trade contingent claims on the different outcomes of t...

Prediction Markets: Fundamentals, Key Design Elements, and Applications

Over the last couple of years, interest in prediction markets as a forecasting method has continuously increased in the scientific world and in industry. Markets provide incentives for information revelation and can be used as a mechanism for aggregating information. So far, prediction markets have done well in every known comparison with other forecasting methods. Whereas information aggregati...

Prediction Markets, Mechanism Design, and Cooperative Game Theory

Prediction markets are designed to elicit information from multiple agents in order to predict (obtain probabilities for) future events. A good prediction market incentivizes agents to reveal their information truthfully; such incentive compatibility considerations are commonly studied in mechanism design. While this relation between prediction markets and mechanism design is well understood at...

Learning in Investment Decisions: Evidence from Prediction Markets and Polls