Prediction Market

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A Prediction Market is an information market for prediction bets (of the probability of the event).



References

2020

  • (Wikipedia, 2020) ⇒ https://en.wikipedia.org/wiki/prediction_market Retrieved:2020-3-4.
    • Prediction markets (also known as betting markets, political betting markets, [1] predictive markets, information markets, decision markets, idea futures, event derivatives, or virtual markets) are exchange-traded markets created for the purpose of trading the outcome of events. The market prices can indicate what the crowd thinks the probability of the event is. A prediction market contract trades between 0 and 100%. It is a binary option that will expire at the price of 0 or 100%.

      Prediction markets can be thought of as belonging to the more general concept of crowdsourcing which is specially designed to aggregate information on particular topics of interest. The main purposes of prediction markets are eliciting aggregating beliefs over an unknown future outcome. Traders with different beliefs trade on contracts whose payoffs are related to the unknown future outcome and the market prices of the contracts are considered as the aggregated belief.

2016

  • (Atanasov et al., 2017) ⇒ Pavel Atanasov, Phillip Rescober, Eric Stone, Samuel A. Swift, Emile Servan-Schreiber, Philip Tetlock, Lyle Ungar, and Barbara Mellers. (2017). “Distilling the Wisdom of Crowds: Prediction Markets Vs. Prediction Polls.” Management science 63, no. 3
    • ABSTRACT: We report the results of the first large-scale, long-term, experimental test between two crowdsourcing methods: prediction markets and prediction polls. More than 2,400 participants made forecasts on 261 events over two seasons of a geopolitical prediction tournament. Forecasters were randomly assigned to either prediction markets (continuous double auction markets) in which they were ranked based on earnings, or prediction polls in which they submitted probability judgments, independently or in teams, and were ranked based on Brier scores. In both seasons of the tournament, prices from the prediction market were more accurate than the simple mean of forecasts from prediction polls. However, team prediction polls outperformed prediction markets when forecasts were statistically aggregated using temporal decay, differential weighting based on past performance, and recalibration. The biggest advantage of prediction polls was at the beginning of long-duration questions. Results suggest that prediction polls with proper scoring feedback, collaboration features, and statistical aggregation are an attractive alternative to prediction markets for distilling the wisdom of crowds.

2013