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Fundamentals of Prediction Markets

In: Prediction Markets

Author

Listed:
  • Stefan Luckner
  • Jan Schröder
  • Christian Slamka
  • Markus Franke
  • Andreas Geyer-Schulz
  • Bernd Skiera
  • Martin Spann
  • Christof Weinhardt

Abstract

After a short history of prediction markets in Section 2.1, we define prediction markets as markets that run for “the primary purpose of aggregating information so that market prices forecast future events” (Berg and Rietz, 2003) in Section 2.2. The theoretic foundations of prediction markets are found in Hayek’s analysis of market-based economies and in the rose of information in Fama’s efficient market hypothesis in Section 2.3. The interaction between incentives for trade information revelation by trading transactions and the resulting adaption of prices is illustrated by a hands-on example in Section 2.4 on the operational principle of prediction markets.

Suggested Citation

  • Stefan Luckner & Jan Schröder & Christian Slamka & Markus Franke & Andreas Geyer-Schulz & Bernd Skiera & Martin Spann & Christof Weinhardt, 2012. "Fundamentals of Prediction Markets," Springer Books, in: Prediction Markets, chapter 2, pages 6-10, Springer.
    • Handle: RePEc:spr:sprchp:978-3-8349-7085-5_2
    DOI: 10.1007/978-3-8349-7085-5_2
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    Cited by:

    1. Werner Antweiler, 2012. "Long-Term Prediction Markets," Journal of Prediction Markets, University of Buckingham Press, vol. 6(3), pages 43-61.

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