Prediction markets: Theory, evidence and applications

Abstract

A convenient definition of a prediction market is a judgment-based market that is created or employed for the purpose of making predictions. The theoretical underpinning derives from the efficient market hypothesis, and from the view that relevant information concerning the likelihood of future events that is dispersed among many people can be effectively aggregated via market mechanisms to help forecast event outcomes. Prediction markets of various types have been employed to forecast outcomes ranging from open and closed-door election outcomes (