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A Note on Prediction Markets

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  • Julia Mortera
  • A. Philip Dawid

Abstract

In a prediction market, individuals can sequentially place bets on the outcome of a future event. This leaves a trail of personal probabilities for the event, each being conditional on the current individual's private background knowledge and on the previously announced probabilities of other individuals, which give partial information about their private knowledge. By means of theory and examples, we revisit some results in this area. In particular, we consider the case of two individuals, who start with the same overall probability distribution but di erent private information, and then take turns in updating their probabilities. We note convergence of the announced probabilities to a limiting value, which may or may not be the same as that based on pooling their private information.

Suggested Citation

  • Julia Mortera & A. Philip Dawid, 2017. "A Note on Prediction Markets," Departmental Working Papers of Economics - University 'Roma Tre' 0215, Department of Economics - University Roma Tre.
    • Handle: RePEc:rtr:wpaper:0215
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    References listed on IDEAS

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    More about this item

    Keywords

    consensus; expert opinion; information aggregation; probability forecast; sequential prediction;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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