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Five open questions about prediction markets

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  • Justin Wolfers
  • Eric Zitzewitz

Abstract

Interest in prediction markets has increased in the last decade, driven in part by the hope that these markets will prove to be valuable tools in forecasting, decisionmaking and risk management--in both the public and private sectors. This paper outlines five open questions in the literature, and we argue that resolving these questions is crucial to determining whether current optimism about prediction markets will be realized.

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2006-06.

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Date of creation: 2006
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Handle: RePEc:fip:fedfwp:2006-06

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Keywords: Forecasting ; Financial markets ; Econometric models;

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References

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  1. Shleifer, Andrei & Vishny, Robert W, 1997. " The Limits of Arbitrage," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 35-55, March.
  2. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-74, Spring.
  3. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2007. "Partisan Impacts on the Economy: Evidence From Prediction Markets and Close Elections," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(2), pages 807-829, 05.
  4. repec:reg:rpubli:259 is not listed on IDEAS
  5. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.
  6. Leigh, Andrew & Wolfers, Justin & Zitzewitz, Eric, 2003. "What do Financial Markets Think of War in Iraq?," Research Papers 1785, Stanford University, Graduate School of Business.
  7. Wolfers, Justin & Zitzewitz, Eric, 2006. "Interpreting Prediction Market Prices as Probabilities," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5676, C.E.P.R. Discussion Papers.
  8. Wolfers Justin & Zitzewitz Eric, 2004. "Experimental Political Betting Markets and the 2004 Election," The Economists' Voice, De Gruyter, De Gruyter, vol. 1(2), pages 1-8, October.
  9. Slemrod, Joel & Greimel, Timothy, 1999. "Did Steve Forbes scare the US municipal bond market?," Journal of Public Economics, Elsevier, Elsevier, vol. 74(1), pages 81-96, October.
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  11. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, Elsevier, vol. 26(1), pages 17-27, February.
  12. repec:reg:wpaper:259 is not listed on IDEAS
  13. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, Econometric Society, vol. 53(6), pages 1315-35, November.
  14. repec:reg:wpaper:430 is not listed on IDEAS
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Cited by:
  1. Justin Wolfers & Eric Zitzewitz, 2006. "Prediction Markets in Theory and Practice," NBER Working Papers 12083, National Bureau of Economic Research, Inc.
  2. R. Karina Gallardo & B. Wade Brorsen & Jayson Lusk, 2010. "Prediction markets: an experimental approach to forecasting cattle on feed," Agricultural Finance Review, Emerald Group Publishing, Emerald Group Publishing, vol. 70(3), pages 414-426, November.
  3. Jackson, Aaron L., 2010. "Policy futures markets with multiple goals," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(1), pages 45-54, March.
  4. Abraham Othman & Tuomas Sandholm, 2013. "The Gates Hillman prediction market," Review of Economic Design, Springer, Springer, vol. 17(2), pages 95-128, June.
  5. David S. Lee & Enrico Moretti, 2009. "Bayesian Learning and the Pricing of New Information: Evidence from Prediction Markets," American Economic Review, American Economic Association, American Economic Association, vol. 99(2), pages 330-36, May.

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