Longshots , Overconfidence and Efficiency on the Iowa Electronic Market *

@inproceedings{Berg2002LongshotsO,
  title={Longshots , Overconfidence and Efficiency on the Iowa Electronic Market *},
  author={Joyce E. Berg and Thomas A. Rietz},
  year={2002}
}
We study the forecast accuracy and efficiency of popular “binary” prediction markets. Such markets forecast probabilities for future states of the world (e.g., election winners) by paying off $0 or $1 depending on the realized state (e.g., who actually won). To assess accuracy, forecast probabilities must be compared to realization frequencies, not individual realizations. We use Iowa Electronic Market (IEM) data to test efficiency against two alternative propositions from behavioral finance… CONTINUE READING
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