NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Prediction Markets

Justin Wolfers, Eric Zitzewitz

NBER Working Paper No. 10504
Issued in May 2004
NBER Program(s):   EFG

We analyze the extent to which simple markets can be used to aggregate disperse information into efficient forecasts of uncertain future events. Drawing together data from a range of prediction contexts, we show that market-generated forecasts are typically fairly accurate, and that they outperform most moderately sophisticated benchmarks. Carefully designed contracts can yield insight into the market's expectations about probabilities, means and medians, and also uncertainty about these parameters. Moreover, conditional markets can effectively reveal the market's beliefs about regression coefficients, although we still have the usual problem of disentangling correlation from causation. We discuss a number of market design issues and highlight domains in which prediction markets are most likely to be useful.

download in pdf format
   (382 K)

email paper

A non-technical summary of this paper is available in the November 2004 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (382 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10504

Published: Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring. citation courtesy of

Users who downloaded this paper also downloaded these:
Snowberg, Wolfers, and Zitzewitz w18222 Prediction Markets for Economic Forecasting
Manski w10359 Interpreting the Predictions of Prediction Markets
Wolfers and Zitzewitz w12060 Five Open Questions About Prediction Markets
Wolfers and Zitzewitz w12200 Interpreting Prediction Market Prices as Probabilities
Wolfers and Zitzewitz w12083 Prediction Markets in Theory and Practice
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us