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Prediction Markets to Forecast Electricity Demand

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Abstract

Forecasting electricity demand for future years is an essential step in resource planning. A common approach is for the system operator to predict future demand from the estimates of individual distribution companies. However, the predictions thus obtained may be of poor quality, since the reporting incentives are unclear. We propose a prediction market as a form of forecasting future demand for electricity. We describe how to implement a simple prediction market for continuous variables, using only contracts based on binary variables. We also discuss specific issues concerning the implementation of such a market.

Suggested Citation

  • Luciano I. de Castro & Peter Cramton, 2012. "Prediction Markets to Forecast Electricity Demand," Papers of Peter Cramton 09ccpre, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
    • Handle: RePEc:pcc:pccumd:09ccpre
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    References listed on IDEAS

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    1. Colin Camerer, 1998. "Can asset markets be manipulated? A field experiment with racetrack betting," Natural Field Experiments 00222, The Field Experiments Website.
    2. Colin F. Camerer, 1998. "Can Asset Markets Be Manipulated? A Field Experiment with Racetrack Betting," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 457-482, June.
    3. Berg, Joyce & Forsythe, Robert & Nelson, Forrest & Rietz, Thomas, 2008. "Results from a Dozen Years of Election Futures Markets Research," Handbook of Experimental Economics Results, in: Charles R. Plott & Vernon L. Smith (ed.), Handbook of Experimental Economics Results, edition 1, volume 1, chapter 80, pages 742-751, Elsevier.
    4. Joyce E. Berg & Thomas A. Rietz, 2003. "Prediction Markets as Decision Support Systems," Information Systems Frontiers, Springer, vol. 5(1), pages 79-93, January.
    5. Robert W. Hahn & Paul Tetlock, 2006. "Information Markets: A New Way of Making Decisions," Books, American Enterprise Institute, number 51409, September.
    6. Berg, Joyce E. & Nelson, Forrest D. & Rietz, Thomas A., 2008. "Prediction market accuracy in the long run," International Journal of Forecasting, Elsevier, vol. 24(2), pages 285-300.
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    More about this item

    Keywords

    electricity market design; prediction markets;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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