Do Prediction Markets Produce Well�?Calibrated Probability Forecasts?

@article{Page2012DoPM,
  title={Do Prediction Markets Produce Well�?Calibrated Probability Forecasts?},
  author={Lionel Page and Robert T. Clemen},
  journal={Econometric Modeling: Capital Markets - Forecasting eJournal},
  year={2012}
}
  • Lionel Page, R. Clemen
  • Published 2012
  • Economics
  • Econometric Modeling: Capital Markets - Forecasting eJournal
This article presents new theoretical and empirical evidence on the forecasting ability of prediction markets. We develop a model that predicts that the time until expiration of a prediction market should negatively affect the accuracy of prices as a forecasting tool in the direction of a ‘favourite/longshot bias’. That is, high-likelihood events are underpriced, and low-likelihood events are over-priced. We confirm this result using a large data set of prediction market transaction prices… Expand
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References

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Participants in prediction markets such as the Iowa Electronic Markets trade all-or-nothing contracts that pay a dollar if and only if specified future events occur. Researchers engaged in empiricalExpand
Prediction Markets: Practical Experiments in Small Markets and Behaviours Observed
This paper discusses a series of prediction markets created and operated in the summer of 2006 to measure calibration and behaviour of small-scale prediction markets. The research finds that smallExpand
A Manipulator Can Aid Prediction Market Accuracy
Prediction markets are low volume speculative markets whose prices offer informative forecasts on particular policy topics. Observers worry that traders may attempt to mislead decision makers byExpand
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TLDR
A real-world on-line experiment pitting the predictions of TradeSports.com and NewsFutures.com regarding American Football outcomes during the fall-winter 2003-2004 NFL season revealed both types of markets exhibited significant predictive powers, and remarkable performance compared to individual humans. Expand
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Manski [2004] analyzes the relationship between the distribution of traders’ beliefs and the equilibrium price in a prediction market with risk neutral traders. He finds that there can be aExpand
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We analyze a binary prediction market in which traders have heterogeneous prior beliefs and private information. Realistically, we assume that traders are allowed to invest a limited amount of moneyExpand
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