Prediction Markets for Economic Forecasting

44 Pages Posted: 21 Jul 2012

See all articles by Erik C. Snowberg

Erik C. Snowberg

Independent

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics; University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; The University of Sydney - Discipline of Economics; Brookings Institution - Economic Studies Program; Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Kiel Institute for the World Economy

Eric Zitzewitz

Dartmouth College; NBER

Abstract

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.

Keywords: prediction markets, forecasting

JEL Classification: C5, G14

Suggested Citation

Snowberg, Erik C. and Wolfers, Justin and Zitzewitz, Eric W., Prediction Markets for Economic Forecasting. IZA Discussion Paper No. 6720, Available at SSRN: https://ssrn.com/abstract=2114900

Justin Wolfers

University of Michigan at Ann Arbor - Department of Economics ( email )

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Eric W. Zitzewitz

Dartmouth College ( email )

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