Prediction Market
A Prediction Market is an information market for prediction bets (of the probability of the event).
- Example(s):
- Counter-Example(s):
- a Prediction Service, such as FiveThirtyEight.
- See: Predictive Market, Decision Market, Idea Futures, Event Derivatives, Virtual Market, Exchange-Traded Fund.
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.
- 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%.
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
- (Montgomery et al., 2013) ⇒ Thomas A. Montgomery, Paul M. Stieg, Michael J. Cavaretta, and Paul E. Moraal. (2013). “Experience from Hosting a Corporate Prediction Market: Benefits Beyond the Forecasts.” In: Proceedings of the 19th ACM SIGKDD International Conference on Knowledge Discovery and Data Mining. ISBN:978-1-4503-2174-7 doi:10.1145/2487575.2488212
- QUOTE: Prediction markets are virtual stock markets used to gain insight and forecast events by leveraging the wisdom of crowds. Popularly applied in the public to cultural questions (election results, box-office returns), they have recently been applied by corporations to leverage employee knowledge and forecast answers to business questions (sales volumes, products and features, release timing). Determining whether to run a prediction market requires practical experience that is rarely described.
Over the last few years, Ford Motor Company obtained practical experience by deploying one of the largest corporate prediction markets known. Business partners in the US, Europe, and South America provided questions on new vehicle features, sales volumes, take rates, pricing, and macroeconomic trends.
We describe our experience, including both the strong and weak correlations found between predictions and real world results. Evaluating this methodology goes beyond prediction accuracy, however, since there are many side benefits. In addition to the predictions, we discuss the value of comments, stock price changes over time, the ability to overcome bureaucratic limits, and flexibly filling holes in corporate knowledge, enabling better decision making. We conclude with advice on [[running prediction markets, including writing good questions, market duration, motivating traders and protecting confidential information.
- QUOTE: Prediction markets are virtual stock markets used to gain insight and forecast events by leveraging the wisdom of crowds. Popularly applied in the public to cultural questions (election results, box-office returns), they have recently been applied by corporations to leverage employee knowledge and forecast answers to business questions (sales volumes, products and features, release timing). Determining whether to run a prediction market requires practical experience that is rarely described.