8 Pages Posted: 7 May 2007
Date Written: May 2007
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: 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
By Cullen Roche