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Five Open Questions About Prediction Markets

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Author Info

  • Wolfers, Justin

    ()
    (University of Michigan)

  • Zitzewitz, Eric

    ()
    (Dartmouth College)

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, decision-making 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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1975.

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Length: 27 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:iza:izadps:dp1975

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Keywords: prediction markets; information markets; event futures; political forecasting; prediction IVs;

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References

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  1. Justin Wolfers & Eric Zitzewitz, 2006. "Interpreting Prediction Market Prices as Probabilities," NBER Working Papers 12200, National Bureau of Economic Research, Inc.
  2. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2006. "Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections," Research Papers 1928, Stanford University, Graduate School of Business.
  4. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, Econometric Society, vol. 53(6), pages 1315-35, November.
  5. Andrei Shleifer & Robert W. Vishny, 1995. "The Limits of Arbitrage," NBER Working Papers 5167, National Bureau of Economic Research, Inc.
  6. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Discussion Papers, Stanford Institute for Economic Policy Research 03-025, Stanford Institute for Economic Policy Research.
  7. repec:reg:wpaper:430 is not listed on IDEAS
  8. 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.
  9. 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.
  10. repec:reg:rpubli:259 is not listed on IDEAS
  11. 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.
  12. 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.
  13. repec:reg:rpubli:430 is not listed on IDEAS
  14. repec:reg:wpaper:259 is not listed on IDEAS
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Cited by:
  1. Wolfers, Justin & Zitzewitz, Eric, 2006. "Prediction Markets in Theory and Practice," Research Papers 1927, Stanford University, Graduate School of Business.
  2. Abraham Othman & Tuomas Sandholm, 2013. "The Gates Hillman prediction market," Review of Economic Design, Springer, Springer, vol. 17(2), pages 95-128, June.
  3. 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.
  4. Jackson, Aaron L., 2010. "Policy futures markets with multiple goals," Journal of Macroeconomics, Elsevier, Elsevier, vol. 32(1), pages 45-54, March.
  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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