Archive for 'Overview'
Preface
“Wanna bet on that?” This playground challenge attests to the sincerity of the questioner. Acceptance of the challenge attests to the sincerity of the target as well. A refusal to bet, meanwhile, suggests insincerity. In the absence of any information about the merits of the dispute, at least, such a refusal gives onlookers some reason […]
The Theoretical Case for Prediction Markets
Risk and transactions costs might affect not only the amount that individuals will be willing to pay at auction but also their bid and ask prices in the subsequent market. But there is a strong theoretical reason to believe that prices derived from market activity will provide more reliable probability estimates than prices derived from […]
The Accuracy of Prediction Markets
The experience with the Iowa Electronic Markets for vote share suggests that such markets have relatively strong accuracy. In a paper considering fifteen elections, Joyce Berg and coauthors show that the markets on election eve were more accurate on average than were final preelection polls.40 The average absolute error of a vote share forecast derived […]
Information Aggregation and Assessment Aggregation
Markets are sometimes said to be good at aggregating information,2 but it may be useful to distinguish two types of information that prediction markets might aggregate. One type is the evidence that someone might use to make a particular prediction. For example, in a prediction market that forecasts election returns, it might include poll data, […]
Regulatory Impediments to Prediction Markets
In closing his critique of PAM, Stiglitz asks, “If this is such a good idea, why haven’t the markets created it on their own?”19 The question suggests that those who believe in markets ought to explain why markets have not already created market-based institutions. There might, however, be some straightforward answers. There is no incentive […]
The Road to Predictocracy
A predictocracy is a government whose foundational institutions are all controlled by prediction markets. Prediction markets might create institutions to serve as ex post decision makers or in some cases ex ante decision makers. The prediction markets themselves, however, would serve as the source of authority for the creation […]
Afterword
Suppose that someone were to invent a magic crystal ball in which a user could see a provisional future. Someone who did not like that future could decide to make small or large changes in conditions and behavior that […]