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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. Andrew Leigh & Justin Wolfers & Eric Zitzewitz, 2003. "What Do Financial Markets Think of War in Iraq?," NBER Working Papers 9587, National Bureau of Economic Research, Inc.
  2. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2006. "Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections," NBER Working Papers 12073, National Bureau of Economic Research, Inc.
  3. Wolfers, Justin & Zitzewitz, Eric, 2006. "Interpreting Prediction Market Prices as Probabilities," CEPR Discussion Papers 5676, C.E.P.R. Discussion Papers.
  4. repec:reg:rpubli:259 is not listed on IDEAS
  5. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," NBER Working Papers 10504, National Bureau of Economic Research, Inc.
  6. repec:reg:rpubli:430 is not listed on IDEAS
  7. Andrei Shleifer & Robert W. Vishny, 1995. "The Limits of Arbitrage," NBER Working Papers 5167, National Bureau of Economic Research, Inc.
  8. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
  9. Wolfers, Justin & Zitzewitz, Eric, 2004. "Experimental Political Betting Markets and the 2004 Election," Working paper 430, Regulation2point0.
  10. Slemrod, Joel & Greimel, Timothy, 1999. "Did Steve Forbes scare the US municipal bond market?," Journal of Public Economics, Elsevier, vol. 74(1), pages 81-96, October.
  11. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
  12. 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.
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Citations

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Cited by:
  1. Wolfers, Justin & Zitzewitz, Eric, 2006. "Prediction Markets in Theory and Practice," IZA Discussion Papers 1991, Institute for the Study of Labor (IZA).
  2. Jackson, Aaron L., 2010. "Policy futures markets with multiple goals," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 45-54, March.
  3. David S. Lee & Enrico Moretti, 2009. "Bayesian Learning and the Pricing of New Information: Evidence from Prediction Markets," American Economic Review, American Economic Association, vol. 99(2), pages 330-36, May.
  4. 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, vol. 70(3), pages 414-426, November.
  5. Abraham Othman & Tuomas Sandholm, 2013. "The Gates Hillman prediction market," Review of Economic Design, Springer, vol. 17(2), pages 95-128, June.

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