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The Promise of Prediction Markets

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Author Info

  • Arrow, Kenneth J.
  • Forsythe, Robert
  • Gorham, Michael
  • Hahn, Robert W.
  • Hanson, Robin
  • Ledyard, John O.
  • Levmore, Saul
  • Litan, Robert E.
  • Milgrom, Paul
  • Nelson, Forrest D.
  • Neumann, George R.
  • Ottaviani, Marco
  • Schelling, Thomas C.
  • Shiller, Robert J.
  • Smith, Vernon L.
  • Snowberg, Erik
  • Sunstein, Cass R.
  • Tetlock, Paul C.
  • Tetlock, Philip E.
  • Varian, Hal R.
  • Wolfers, Justin
  • Zitzewitz, Eric

Abstract

Prediction markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as a presidential election. Using these markets as forecasting tools could substantially improve decision making in the private and public sectors. We argue that U.S. regulators should lower barriers to the creation and design of prediction markets by creating a safe harbor for certain types of small stakes markets. We believe our proposed change has the potential to stimulate innovation in the design and use of prediction markets throughout the economy, and in the process to provide information that will benefit the private sector and government alike.

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Bibliographic Info

Paper provided by Regulation2point0 in its series Working paper with number 460.

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Date of creation: May 2008
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Handle: RePEc:reg:wpaper:460

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Web page: http://regulation2point0.org/

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Cited by:
  1. Amit Gandhi & Daniela Iorio & Carly Urban, 2010. "Negative Advertising and Political Competition," Working Papers 623, Barcelona Graduate School of Economics.
  2. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2012. "Prediction Markets for Economic Forecasting," CESifo Working Paper Series 3884, CESifo Group Munich.
  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. Edoardo Gaffeo, 2013. "Using information markets in grantmaking. An assessment of the issues involved and an application to Italian banking foundations," DEM Discussion Papers 2013/08, Department of Economics and Management.
  5. Amos Storkey, 2011. "Machine Learning Markets," Papers 1106.4509, arXiv.org.
  6. Fabio Milani, 2010. "Public option and private profits," Applied Health Economics and Health Policy, Springer, vol. 8(3), pages 155-165, May.
  7. David Anthoff & Robert Hahn, 2010. "Government failure and market failure: on the inefficiency of environmental and energy policy," Oxford Review of Economic Policy, Oxford University Press, vol. 26(2), pages 197-224, Summer.

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