Prediction Markets: How Do Incentive Schemes Affect Prediction Accuracy?

The results of recent studies on prediction markets are encouraging. Prior experience demonstrates that markets with different incentive schemes predicted uncertain future events at a remarkable accuracy. In this paper, we study the impact of different monetary incentives on the prediction accuracy in a field experiment. In order to do so, we compare three groups of users, corresponding to three treatments with different incentive schemes, in a prediction market for the FIFA World Cup 2006. Somewhat surprisingly, our results show that performancecompatible payment does not necessarily increase the prediction accuracy.