Statement on Prediction Markets

8 Pages Posted: 7 May 2007  

Kenneth J. Arrow

Stanford University - Department of Economics

Shyam Sunder

Yale University - School of Management; Yale University - Cowles Foundation

Robert Forsythe

University of South Florida - College of Business

Robert E. Litan

Council on Foreign Relations (CFR) - Council on Foreign Relations- Washington D.C.

Eric Zitzewitz

Dartmouth College; NBER

Michael Gorham

Illinois Institute of Technology

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

Northwestern University - Kellogg School of Management

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

Independent

Cass R. Sunstein

Harvard Law School; Harvard University - Harvard Kennedy School (HKS)

Paul C. Tetlock

Columbia Business School - Finance and Economics

Philip E. Tetlock

University of California, Berkeley - Organizational Behavior & Industrial Relations Group; University of Pennsylvania - Management Department

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 Michigan at Ann Arbor - Department of Economics; The Ford School of Public Policy, University of Michigan; University of Sydney Department of Economics; The Brookings Institution; Peterson Institute for International Economics; 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

Date Written: May 2007

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 Classification: D61, D70

Suggested Citation

Arrow, Kenneth J. and Sunder, Shyam and Forsythe, Robert and Litan, Robert E. and Zitzewitz, Eric and Gorham, Michael and Hahn, Robert W. and Hanson, Robin and Kahneman, Daniel and Ledyard, John O. and Levmore, Saul and Milgrom, Paul R. and Nelson, Forrest D. and Neumann , George R. and Ottaviani, Marco and Plott, Charles R. and Schelling, Thomas C. and Shiller, Robert J. and Smith, Vernon L. and Snowberg, Erik C. and Sunstein, Cass R. and Tetlock, Paul C. and Tetlock, Philip E. and Varian, Hal R. and Wolfers, Justin, Statement on Prediction Markets (May 2007). AEI-Brookings Joint Center Related Publication No. 07-11. Available at SSRN: https://ssrn.com/abstract=984584 or http://dx.doi.org/10.2139/ssrn.984584

Kenneth J. Arrow

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Shyam Sunder

Yale University - School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6160 (Phone)

HOME PAGE: http://www.som.yale.edu/faculty/sunder/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Robert Forsythe

University of South Florida - College of Business ( email )

Tampa, FL 33620-5500
United States
813-974-3229 (Phone)
813-974-3030 (Fax)

Robert E. Litan (Contact Author)

Council on Foreign Relations (CFR) - Council on Foreign Relations- Washington D.C. ( email )

1777 F Street, NW
Washington, DC 20006
United States

Eric W. Zitzewitz

Dartmouth College ( email )

Hanover, NH 03755
United States
603-646-2891 (Phone)
603-646-2122 (Fax)

HOME PAGE: http://www.dartmouth.edu/~ericz

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michael Gorham

Illinois Institute of Technology ( email )

Stuart Graduate School of Business
565 W. Adams St.
Chicago, IL 60661
United States

Robert W. Hahn

University of Oxford, Smith School ( email )

Oxford
United Kingdom

Georgetown University

Georgetown Center for Business and Public Policy
Washington, DC 20057
United States

Robin Hanson

George Mason University ( email )

MS 1D3, Carow Hall
4400 University Dr.
Fairfax, VA 22030-4444
United States
703-993-2326 (Phone)
703-993-2323 (Fax)

HOME PAGE: http://hanson.gmu.edu

Oxford University - Future of Humanity Institute ( email )

Suite 8, Littlegate House
16/17 St Ebbe's Street
Oxford, OX1 1PT
United Kingdom

Daniel Kahneman

Princeton University ( email )

Department of Psychology 3-2-1 Green Hall
Princeton, NJ 08544
United States
609-258-2280 (Phone)
609-258-2809 (Fax)

John O. Ledyard

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
228-77
Pasadena, CA 91125
United States
626-395-8482 (Phone)

Saul Levmore

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States
773-702-9590 (Phone)
773-702-0730 (Fax)

Paul R. Milgrom

Stanford University ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
+1-650-723-3397 (Phone)
+1-419-791-8545 (Fax)

HOME PAGE: www.milgrom.net

Forrest D. Nelson

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

108 Pappajohn Building
Iowa City, IA 52242
United States
(319) 335-0854 (Phone)

George R. Neumann

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

108 Pappajohn Building
Iowa City, IA 52242
United States
319-335-0850 (Phone)
319-356-1956 (Fax)

Marco Ottaviani

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
337 Baxter Hall
Pasadena, CA 91125
United States
626-395-4209 (Phone)

Thomas C. Schelling

University of Maryland ( email )

College Park
College Park, MD 20742
United States

Robert J. Shiller

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
203-432-3708 (Phone)

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States
203-432-3708 (Phone)
203-432-6167 (Fax)

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States
203-432-3708 (Phone)
203-432-6167 (Fax)

HOME PAGE: http://www.econ.yale.edu/~shiller/

Vernon L. Smith

Chapman University - Economic Science Institute ( email )

One University Dr.
Orange, CA 92866
United States
714-628-2830 (Phone)

Chapman University School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States

Erik C. Snowberg

Independent

No Address Available

Cass R. Sunstein

Harvard Law School ( email )

1575 Massachusetts Ave
Areeda Hall 225
Cambridge, MA 02138
United States
617-496-2291 (Phone)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Paul C. Tetlock

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States
212-854-9895 (Fax)

HOME PAGE: http://www0.gsb.columbia.edu/faculty/ptetlock/

Philip E. Tetlock

University of California, Berkeley - Organizational Behavior & Industrial Relations Group ( email )

Berkeley, CA 94720
United States

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

Hal R. Varian

University of California, Berkeley - School of Information ( email )

102 South Hall
Berkeley, CA 94720-4600
United States
510-642-9980 (Phone)
510-642-5814 (Fax)

HOME PAGE: http://www.sims.berkeley.edu/~hal/people/hal/biography.html

University of California, Berkeley - Operations and Information Technology Management Group ( email )

545 Student Services Building
Berkeley, CA 94720
United States
510-643-6388 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Justin Wolfers

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

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
734-764-2447 (Phone)

HOME PAGE: http://www.nber.org/~jwolfers

The Ford School of Public Policy, University of Michigan ( email )

735 South State Street, Weill Hall
Ann Arbor, MI 48109
United States
734-615-6846 (Phone)

HOME PAGE: http://www.nber.org/~jwolfers

University of Sydney Department of Economics ( email )

P.O. Box H58
Australia Square
Sydney, NSW 2006
Australia

The Brookings Institution ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
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HOME PAGE: http://www.nber.org/~jwolfers

Peterson Institute for International Economics ( email )

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Washington, DC 20036
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National Bureau of Economic Research (NBER) ( email )

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HOME PAGE: http://www.nber.org/~jwolfers

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=1737

Centre for Economic Policy Research (CEPR)

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London, EC1V 3PZ
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=157943

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany

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