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Five Open Questions About Prediction Markets

Author

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  • Wolfers, Justin
  • Zitzewitz, Eric

Abstract

Interest in prediction markets has increased in the last decade, driven in part by the hope that these markets will prove to be valuable tools in forecasting, decision-making and risk management - in both the public and private sectors. This paper outlines five open questions in the literature, and we argue that resolving these questions is crucial to determining whether current optimism about prediction markets will be realized.

Suggested Citation

  • Wolfers, Justin & Zitzewitz, Eric, 2006. "Five Open Questions About Prediction Markets," CEPR Discussion Papers 5562, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5562
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    References listed on IDEAS

    as
    1. Leigh, Andrew & Wolfers, Justin & Zitzewitz, Eric, 2003. "What do Financial Markets Think of War in Iraq?," Research Papers 1785, Stanford University, Graduate School of Business.
    2. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2007. "Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections," The Quarterly Journal of Economics, Oxford University Press, vol. 122(2), pages 807-829.
    3. repec:reg:rpubli:259 is not listed on IDEAS
    4. Wolfers Justin & Zitzewitz Eric, 2004. "Experimental Political Betting Markets and the 2004 Election," The Economists' Voice, De Gruyter, vol. 1(2), pages 1-8, October.
    5. Shleifer, Andrei & Vishny, Robert W, 1997. " The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March.
    6. Justin Wolfers & Eric Zitzewitz, 2006. "Interpreting prediction market prices as probabilities," Working Paper Series 2006-11, Federal Reserve Bank of San Francisco.
    7. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.
    8. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
    9. Slemrod, Joel & Greimel, Timothy, 1999. "Did Steve Forbes scare the US municipal bond market?," Journal of Public Economics, Elsevier, vol. 74(1), pages 81-96, October.
    10. repec:spr:infosf:v:5:y:2003:i:1:d:10.1023_a:1022002107255 is not listed on IDEAS
    11. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    12. repec:reg:rpubli:430 is not listed on IDEAS
    13. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-174, Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sung, Ming-Chien & McDonald, David C.J. & Johnson, Johnnie E.V., 2016. "Probabilistic forecasting with discrete choice models: Evaluating predictions with pseudo-coefficients of determination," European Journal of Operational Research, Elsevier, vol. 248(3), pages 1021-1030.
    2. Wolfers, Justin & Zitzewitz, Eric, 2006. "Prediction Markets in Theory and Practice," CEPR Discussion Papers 5578, C.E.P.R. Discussion Papers.
    3. repec:spr:jecfin:v:41:y:2017:i:4:d:10.1007_s12197-016-9375-5 is not listed on IDEAS
    4. Abraham Othman & Tuomas Sandholm, 2013. "The Gates Hillman prediction market," Review of Economic Design, Springer;Society for Economic Design, vol. 17(2), pages 95-128, June.
    5. 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, vol. 70(3), pages 414-426, November.
    6. repec:oup:restud:v:82:y:2015:i:4:p:1309-1341. is not listed on IDEAS
    7. 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 330-336, May.
    8. Jackson, Aaron L., 2010. "Policy futures markets with multiple goals," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 45-54, March.
    9. Acker, Daniella & Duck, Nigel W., 2015. "Political risk, investor attention and the Scottish Independence referendum," Finance Research Letters, Elsevier, vol. 13(C), pages 163-171.

    More about this item

    Keywords

    event futures; information markets; instrumental variables; market manipulation; prediction IV; prediction markets;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G1 - Financial Economics - - General Financial Markets
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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