Prediction Markets: The Virtual Super 12 and 2004 U.S. Election

Regional Economic Bulletin, pp. 10-16, June 2005

7 Pages Posted: 12 Jun 2006

See all articles by Philip F. O'Connor

Philip F. O'Connor

University of Auckland - Department of Accounting and Finance; University of Waikato - Management School

Abstract

This paper speculates about reasons why prediction markets work so well. Some common political arguments opposing prediction markets are discussed with reference to predictive information sources surrounding the 9/11 terrorist attacks (in hindsight). The paper then analyzes two internet prediction markets. First, the virtual super 12, where over 100,000 participants predict the results of rugby games. The wisdom of crowds is confirmed, as it is found that the consensus pick performs in the top 1% of participants. Next, Tradesports contracts on the US presidential election are analyzed. On the day of the election, Tradesports' prices reacted to early (misleading) exit poll information but were quicker to dismiss these results than media coverage. The prediction market demonstrated that Ohio was the key state that drove the election result.

Keywords: Prediction, efficient markets

JEL Classification: G13, G14, G22

Suggested Citation

O'Connor, Philip F., Prediction Markets: The Virtual Super 12 and 2004 U.S. Election. Regional Economic Bulletin, pp. 10-16, June 2005. Available at SSRN: https://ssrn.com/abstract=905643

Philip F. O'Connor (Contact Author)

University of Auckland - Department of Accounting and Finance ( email )

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Auckland 1001
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University of Waikato - Management School ( email )

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New Zealand
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