IDEAS home Printed from https://ideas.repec.org/a/eme/afrpps/v70y2010i3p414-426.html
   My bibliography  Save this article

Prediction markets: an experimental approach to forecasting cattle on feed

Author

Listed:
  • R. Karina Gallardo
  • B. Wade Brorsen
  • Jayson Lusk

Abstract

Purpose - The purpose of this paper is to use prediction markets to forecast an agricultural event: United States Department of Agriculture's number of cattle on feed (COF). Prediction markets are increasingly popular forecast tools due to their flexibility and proven accuracy to forecast a diverse array of events. Design/methodology/approach - During spring 2008, a market was constructed comprised of student traders in which they bought and sold contracts whose value was contingent on the number of COF to be reported on April 18, 2008. During a nine‐week period, students were presented three types of contracts to forecast the number of COF. To estimate forecasts a uniform price sealed bid auction mechanism was used. Findings - The results showed that prediction markets forecasted 11.5 million head on feed, which was about 1.6 percent lower than the actual number of COF (11.684 million). The prediction market also fared slightly worse than analysts' predictions, which on average suggested there would be about 11.795 million head (an over‐estimate of about 1 percent). Originality/value - The contribution of this study was not to provide conclusive evidence on the efficacy of using prediction markets to forecast COF, but rather to present an empirical example that will spark interest among agricultural economists on the promises and pitfalls of a research method that has been relatively underutilized in the agricultural economics literature.

Suggested Citation

  • 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 Limited, vol. 70(3), pages 414-426, November.
    • Handle: RePEc:eme:afrpps:v:70:y:2010:i:3:p:414-426
    DOI: 10.1108/00021461011088521
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/00021461011088521/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/00021461011088521/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/00021461011088521?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wolfers, Justin & Zitzewitz, Eric, 2006. "Five Open Questions About Prediction Markets," CEPR Discussion Papers 5562, C.E.P.R. Discussion Papers.
    2. repec:reg:rpubli:259 is not listed on IDEAS
    3. Frank, Julieta & Garcia, Philip & Irwin, Scott H., 2008. "To What Surprises Do Hog Futures Markets Respond?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(1), pages 1-15, April.
    4. Frank, Julieta & Garcia, Philip & Irwin, Scott H., 2008. "To What Surprises Do Hog Futures Markets Respond?," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(1), pages 73-87, April.
    5. Robert W. Hahn & Paul Tetlock, 2006. "Information Markets: A New Way of Making Decisions," Books, American Enterprise Institute, number 51409, September.
    6. John M. Marsh, 2003. "Impacts of Declining U.S. Retail Beef Demand on Farm-Level Beef Prices and Production," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 902-913.
    7. Shiller, Robert J., 1999. "Human behavior and the efficiency of the financial system," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 20, pages 1305-1340, Elsevier.
    8. Joyce E. Berg & Thomas A. Rietz, 2003. "Prediction Markets as Decision Support Systems," Information Systems Frontiers, Springer, vol. 5(1), pages 79-93, January.
    9. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    10. Forsythe, Robert & Forrest Nelson & George R. Neumann & Jack Wright, 1992. "Anatomy of an Experimental Political Stock Market," American Economic Review, American Economic Association, vol. 82(5), pages 1142-1161, December.
    11. Thomas L. Mann & Richard J. Dowen, 1996. "Are hog and pig reports informative?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(3), pages 273-287, May.
    12. Good, Darrel L. & Irwin, Scott H. & Isengildina, Olga, 2006. "The Value of USDA Situation and Outlook Information in Hog and Cattle Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(2), pages 1-21, August.
    13. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    14. Orlen Grunewald & Mark S. McNulty & Arlo W. Biere, 1993. "Live Cattle Futures Response to Cattle on Feed Reports," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(1), pages 131-137.
    15. Dhuyvetter, Kevin C. & Schroeder, Ted C. & Parcell, Joseph L., 1997. "The Effect of USDA Cattle on Feed Reports on Feeder Cattle Futures Prices," 1997 Annual Meeting, July 13-16, 1997, Reno\ Sparks, Nevada 35751, Western Agricultural Economics Association.
    16. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    17. Phil L. Colling & Scott H. Irwin, 1990. "The Reaction of Live Hog Futures Prices to USDA Hogs and Pigs Reports," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(1), pages 84-94.
    18. Paul W. Rhode & Koleman S. Strumpf, 2004. "Historical Presidential Betting Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 127-141, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Berna Karali & Scott H. Irwin & Olga Isengildina‐Massa, 2020. "Supply Fundamentals and Grain Futures Price Movements," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(2), pages 548-568, March.
    2. Matthew Houser & Berna Karali, 2020. "How Scary Are Food Scares? Evidence from Animal Disease Outbreaks," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(2), pages 283-306, June.
    3. Isengildina-Massa, Olga & Cao, Xiang & Karali, Berna & Irwin, Scott H. & Adjemian, Michael & Johansson, Robert C., 2021. "When does USDA information have the most impact on crop and livestock markets?," Journal of Commodity Markets, Elsevier, vol. 22(C).
    4. Stephan Schulmeister, 2000. "Technical Analysis and Exchange Rate Dynamics," WIFO Studies, WIFO, number 25857, Juni.
    5. Wolfers, Justin & Zitzewitz, Eric, 2006. "Prediction Markets in Theory and Practice," CEPR Discussion Papers 5578, C.E.P.R. Discussion Papers.
    6. J. Doyne Farmer, 2002. "Market force, ecology and evolution," Industrial and Corporate Change, Oxford University Press, vol. 11(5), pages 895-953, November.
    7. Patrick Buckley & Fergal O’Brien, 0. "The effect of malicious manipulations on prediction market accuracy," Information Systems Frontiers, Springer, vol. 0, pages 1-13.
    8. Jasman Tuyon & Zamri Ahmada, 2016. "Behavioural finance perspectives on Malaysian stock market efficiency," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 16(1), pages 43-61, March.
    9. Olga Isengildina-Massa & Berna Karali & Scott H Irwin, 2017. "Do Markets Correct for Smoothing in USDA Crop Production Forecasts? Evidence from Private Analysts and Futures Prices," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 39(4), pages 559-583.
    10. Isengildina-Massa, Olga & Irwin, Scott H. & Good, Darrel L. & Gomez, Jennifer K., 2008. "The Impact of Situation and Outlook Information in Corn and Soybean Futures Markets: Evidence from WASDE Reports," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 40(1), pages 89-103, April.
    11. Gert Abraham Lowies & Christiaan Ernst Cloete, 2013. "The Influence of Frame Dependence on Investment Decisions made by Listed Property Fund Managers in South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 5(11), pages 805-814.
    12. Patrick Buckley & Fergal O’Brien, 2017. "The effect of malicious manipulations on prediction market accuracy," Information Systems Frontiers, Springer, vol. 19(3), pages 611-623, June.
    13. Assia Kamoune & Nafii Ibenrissoul, 2022. "Traditional versus Behavioral Finance Theory [La théorie de la finance traditionnelle contre la théorie de la finance comportementale]," Post-Print hal-03634756, HAL.
    14. Karali, Berna & Isengildina-Massa, Olga & Irwin, Scott H. & Adjemian, Michael K. & Johansson, Robert, 2019. "Are USDA reports still news to changing crop markets?," Food Policy, Elsevier, vol. 84(C), pages 66-76.
    15. Sabiou Inoua, 2015. "The Intrinsic Instability of Financial Markets," Papers 1508.02203, arXiv.org.
    16. Richard Borghesi, 2014. "The impact of the disposition effect on asset prices: insight from the NBA," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 38(4), pages 698-711, October.
    17. Lehecka, Georg V., 2014. "The Value of USDA Crop Progress and Condition Information: Reactions of Corn and Soybean Futures Markets," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 39(1), pages 1-18, April.
    18. Yu, Dian & Gao, Jianjun & Wang, Tongyao, 2022. "Betting market equilibrium with heterogeneous beliefs: A prospect theory-based model," European Journal of Operational Research, Elsevier, vol. 298(1), pages 137-151.
    19. Qureshi, Salman Ali & Rehman, Kashif ur & Hunjra, Ahmed Imran, 2012. "Factors Affecting Investment Decision Making of Equity Fund Managers," MPRA Paper 60783, University Library of Munich, Germany.
    20. Christiane Goodfellow & Dirk Schiereck & Steffen Wippler, 2013. "Are behavioural finance equity funds a superior investment? A note on fund performance and market efficiency," Journal of Asset Management, Palgrave Macmillan, vol. 14(2), pages 111-119, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:afrpps:v:70:y:2010:i:3:p:414-426. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.