Prediction Markets for Economic Forecasting

Abstract

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. * We dedicate this chapter to the memory of John Delaney, founder and CEO of Intrade.com. An innovator and source of inspiration for many prediction market researchers, he will be sorely missed.

Prediction markets: Theory, evidence and applications

“…The potential of these markets to forecast event outcomes has generated significant interest among social scientists and the business community, while corporations use prediction markets as a decision support tool (O'Leary, D.E., 2015, Spears et al, 2009. Prediction markets also have many potentially valuable applications for public policy (Paton et al, 2010;Tetlock et al, 2017) and for economic forecasting (Snowberg et al, 2013). A separate focus of attention has been the design of the market mechanisms used in prediction markets (Chen, 2011;Klingert and Meyer, 2018;Spann and Skiera, 2003).…”

Forecasting Elections: Do Prediction Markets Tells Us Anything More Than the Polls?

“…focusing on economic indicators(Snowberg et al 2012) found a survey of business expectations did not encompass either initial unemployment claims or retail sales, suggesting the business confidence, and the labour force and retail series were complementary, and did not overlap in terms of the economic information provided. In essence, each series had informational value for market participants.Another important issue in comparing the relative performance of prediction markets and polls in forecasting elections concerns the temporal horizons.…”