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Statement on Prediction Markets
Kenneth J. Arrow Stanford University - Department of Economics Shyam Sunder Yale School of Management Robert Forsythe University of South Florida - College of Business Administration; University of Iowa - College of Business Administration Robert E. Litan Ewing Marion Kauffman Foundation; AEI-Brookings Joint Center for Regulatory Studies Michael Gorham Illinois Institute of Technology Eric Zitzewitz Dartmouth College Robert W. Hahn University of Oxford, Smith School; Georgetown University Robin Hanson George Mason University; Oxford University - Future of Humanity Institute Daniel Kahneman Princeton University John O. Ledyard California Institute of Technology - Division of the Humanities and Social Sciences Saul Levmore University of Chicago Law School Paul R. Milgrom Stanford University Forrest D. Nelson University of Iowa - Henry B. Tippie College of Business - Department of Economics George R. Neumann University of Iowa - Henry B. Tippie College of Business - Department of Economics Marco Ottaviani London Business School Charles R. Plott California Institute of Technology - Division of the Humanities and Social Sciences Thomas C. Schelling University of Maryland Robert J. Shiller Yale University - Cowles Foundation; National Bureau of Economic Research (NBER); Yale University - International Center for Finance Vernon L. Smith Chapman University - Economic Science Institute; Chapman University School of Law Erik C. Snowberg Stanford Graduate School of Business Cass R. Sunstein Harvard University - Harvard Law School Paul C. Tetlock Columbia Business School Philip E. Tetlock University of California, Berkeley - Organizational Behavior & Industrial Relations Group Hal R. Varian University of California, Berkeley - School of Information; University of California, Berkeley - Operations and Information Technology Management Group; National Bureau of Economic Research (NBER) Justin Wolfers University of Pennsylvania - Business & Public Policy Department; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); Federal Reserve Bank of San Francisco; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Kiel Institute for the World Economy May 2007 AEI-Brookings Joint Center Related Publication No. 07-11 Abstract: Prediction markets are markets for contracts that yield payments based on the outcome of an uncertain future event, such as a presidential election. Using these markets as forecasting tools could substantially improve decision making in the private and public sectors. We argue that U.S. regulators should lower barriers to the creation and design of prediction markets by creating a safe harbor for certain types of small stakes markets. We believe our proposed change has the potential to stimulate innovation in the design and use of prediction markets throughout the economy, and in the process to provide information that will benefit the private sector and government alike.
Keywords: prediction markets, public policy, forecasting, regulation JEL Classifications: D61, D70 Working Paper SeriesDate posted: May 07, 2007 ; Last revised: October 06, 2009Suggested CitationContact Information
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