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Prediction Markets for Economic Forecasting

  • Erik Snowberg

    ()

  • Justin Wolfers

    ()

  • Eric Zitzewitz

    ()

Prediction markets—markets used to forecast future events—have been used to accurately forecast the outcome of political contests, sporting events, and, occasionally, economic outcomes. This chapter summarizes the latest research on prediction markets in order to further their utilization by economic forecasters. We show that prediction markets have a number of attractive features: they quickly incorporate new information, are largely efficient, and impervious to manipulation. Moreover, markets generally exhibit lower statistical errors than professional forecasters and polls. Finally, we show how markets can be used to both uncover the economic model behind forecasts, as well as test existing economic models.

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File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2012/332012.pdf
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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2012-33.

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Length: 43 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:een:camaaa:2012-33
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  4. 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.
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