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Probability Forecasts and Prediction Markets

Author

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  • Julia Mortera
  • A. Philip Dawid

Abstract

We give an overview of various topics tied to the expression of uncertainty about a variable or event by means of a probability distribution. We rst consider methods used to evaluate a single probability forecaster and then revisit methods for combining several experts' distributions. We describe the implications of imposing coherence constraints, based on a speci c understanding of \expertise". In the nal part we revisit from a statistical standpoint some results in the economics literature on prediction markets, where individuals sequentially place bets on the outcome of a future event. In particular we consider the case of two individuals who start with the same probability distribution but have di erent private information, and 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, 2019. "Probability Forecasts and Prediction Markets," Departmental Working Papers of Economics - University 'Roma Tre' 0250, Department of Economics - University Roma Tre.
    • Handle: RePEc:rtr:wpaper:0250
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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
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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