Prediction Markets for Economic Forecasting
Erik C. Snowberg
University of Michigan at Ann Arbor - Department of Economics; The Ford School of Public Policy, University of Michigan; The Brookings Institution; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy
Dartmouth College; NBER
IZA Discussion Paper No. 6720
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.
Number of Pages in PDF File: 44
Keywords: prediction markets, forecasting
JEL Classification: C5, G14working papers series
Date posted: July 21, 2012
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