Long-Term Forecasting with Prediction Markets - A Field Experiment on Applicability and Expert Confidence

Journal of Prediction Markets, Vol. 2, No. 2, pp. 71-91, 2008

Posted: 24 Sep 2008

See all articles by Andreas Graefe

Andreas Graefe

Macromedia University of Applied Sciences

Christof Weinhardt

Karlsruhe Institute of Technology

Date Written: September 2008

Abstract

While prediction markets have become increasingly popular to forecast the near-term future, the literature provides little evidence on how they perform for long-term problems. For assessing the long-term, decision-makers traditionally rely on experts, although empirical research disputes the value of expert advice. Reporting on findings from a field experiment in which we implemented two prediction markets in parallel to a Delphi study, this paper addresses two questions. First, we analyze the applicability of prediction markets for long-term problems whose outcome cannot be judged for a long time. Second, by comparing trading behavior of an expert and a student market, we analyze whether there is evidence that supports the assumption that experts possess superior knowledge. Our results show that prediction markets provide similar results as the well-established Delphi method. We conclude that prediction markets appear to be applicable for long-term forecasting. Furthermore, we observe differences in the confidence of experts and non-experts. Our findings indicate that, in contrast to students, experts reveal their information well-considered based on what they think they know. Finally, we discuss how such analyses of market participants' confidence provide valuable information to decision-makers and may be used to improve on traditional forecasting methods.

Suggested Citation

Graefe, Andreas and Weinhardt, Christof, Long-Term Forecasting with Prediction Markets - A Field Experiment on Applicability and Expert Confidence (September 2008). Journal of Prediction Markets, Vol. 2, No. 2, pp. 71-91, 2008, Available at SSRN: https://ssrn.com/abstract=1272670

Andreas Graefe (Contact Author)

Macromedia University of Applied Sciences ( email )

Sandstrasse 9
Munich, Bavaria 80337
Germany

HOME PAGE: http://www.andreas-graefe.org

Christof Weinhardt

Karlsruhe Institute of Technology ( email )

Kaiserstra├če 12
Karlsruhe, Baden W├╝rttemberg 76131
Germany

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