Do Prediction Markets Produce Well-Calibrated Probability Forecasts?

Economic Journal

Volumn 123, Issue 568, 2013, Pages 491-513

  Page, Lionel ^a   Clemen, Robert T ^b  

^a QUEENSLAND UNIVERSITY OF TECHNOLOGY   (Australia)

^b DUKE UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

CALIBRATION; MARKET CONDITIONS; NUMERICAL MODEL; PREDICTION; PRICE DETERMINATION;

EID: 84876964729     PISSN: 00130133     EISSN: 14680297     Source Type: Journal    
DOI: 10.1111/j.1468-0297.2012.02561.x     Document Type: Article

References (40)

1. Ali, M.M. (1977). 'Probability and utility estimates for racetrack bettors', Journal of Political Economy, vol. 85(4), pp. 803-15.
2. Allen, F. and Gale, D. (1992). 'Stock-price manipulation', Review of Financial Studies, vol. 5(3), pp. 503-29.
3. Andersen, S., Harrison, G.W., Lau, M.I. and Rutstrom, E.E. (2008). 'Eliciting risk and time preferences', Econometrica, vol. 76(3), pp. 583-618.
4. Berg, J.E. and Rietz, T.A. (2002). 'Longshots, overconfidence and efficiency on the Iowa Electronic Market', Working Paper, Tippie College of Business, University of Iowa.
5. Bird, R., McCrae, M. and Beggs, J. (1987). 'Are gamblers really risk takers', Australian Economic Papers, vol. 26(49), pp. 237-53.
6. Busche, K. and Hall, C.D. (1988). 'An exception to the risk preference anomaly', Journal of Business, vol. 61(3), pp. 337-46.
7. Cain, M., Law, D. and Peel, D. (2002). 'Is one price enough to value a state-contingent asset correctly? Evidence fromm a gambling market', Applied Financial Economics, vol. 12(1), pp. 33-8.
8. Camerer, C. (1998). 'Can asset markets be manipulated? A field experiment with racetrack betting', Journal of Political Economy, vol. 106(3), pp. 457-82.
9. Christiansen, J.D. (2007). 'Prediction markets: practical experiments in small markets and behaviours observed', Journal of Prediction Markets, vol. 1(1), pp. 17-41.
10. Coleman, L. (2004). 'New light on the longshot bias', Applied Economics, vol. 36(4), pp. 315-26.
11. Diecidue, E., Schmidt, U. and Wakker, P.P. (2004). 'The utility of gambling reconsidered', Journal of Risk and Uncertainty, vol. 29(3), pp. 241-59.
12. Fan, J. (1993). 'Local linear regression smoothers and their minimax efficiencies', Annals of Statistics, vol. 21(1), pp. 196-216.
13. Fox, C. and Clemen, R. (2005). 'Subjective probability assessment in decision analysis: partition dependence and bias toward the ignorance prior', Management Science, vol. 51(9), pp. 1417-32.
14. Gjerstad, S. (2005). 'Risk aversion, beliefs, and prediction market equilibrium', Dept of Economics, University of Arizona.
15. Golec, J. and Tamarkin, M. (1998). 'Bettors love skewness, not risk, at the horse track', Journal of Political Economy, vol. 106(1), pp. 205-25.
16. Griffith, R.M. (1949). 'Odds adjustments by American horse-race bettors', American Journal of Psychology, vol. 62(2), pp. 290-4.
17. Hansen, J., Schmidt, C. and Strobel, M. (2004). 'Manipulation in political stock markets-preconditions and evidence', Applied Economics Letters, vol. 11(7), pp. 459-63.
18. Hanson, R. and Oprea, R. (2009). 'A manipulator can aid prediction market accuracy', Economica, vol. 76(302), pp. 304-14.
19. Hanson, R., Oprea, R. and Porter, D. (2006). 'Information aggregation and manipulation in an experimental market', Journal of Economic Behavior and Organization, vol. 60(4), pp. 449-59.
20. Härdle, W. (1992). Applied Nonparametric Regression, Cambridge: Cambridge University Press.
21. Jullien, B. and Salanie, B. (2000). 'Estimating preferences under risk: the case of racetrack bettors', Journal of Political Economy, vol. 108(3), p. 503.
22. Kahneman, D. and Tversky, A. (1979). 'Prospect theory: an analysis of decision under risk', Econometrica, vol. 47, pp. 263-91.
23. Lattimore, P.M., Baker, J.R. and Witte, A.D. (1992). 'The influence of probability on risky choice', Journal of Economic Behavior and Organization, vol. 17(S 377), p. 400.
24. Manski, C.F. (2006). 'Interpreting the predictions of prediction markets', Economics Letters, vol. 91(3), pp. 425-9.
25. Oliven, K. and Rietz, T. (2004). 'Suckers are born but markets are made: individual rationality, arbitrage, and market efficiency on an electronic futures market', Management Science, vol. 50(3), pp. 336-51.
26. Ottaviani, M. and Sørensen, P.N. (2007). 'Outcome manipulation in corporate prediction markets', Journal of the European Economic Association, vol. 5(2-3), pp. 554-63.
27. Ottaviani, M. and Sørensen, P.N. (2009). 'Surprised by the parimutuel odds?'American Economic Review, vol. 99(5) pp. 2129-34.
28. Ottaviani, M. and Sørensen, P.N. (2010a). 'Noise, information, and the favorite-longshot bias in parimutuel predictions', American Economic Journal: Microeconomics, vol. 2(1), pp. 58-85.
29. Ottaviani, M. and Sørensen, P.N. (2010b). 'Aggregation of information and beliefs in prediction markets', mimeo, California Institute of Technology.
30. Rhode, P.W. and Strumpf, K.S. (2006). Manipulating Political Stock Markets: A Field Experiment and a Century of Observational Data, Chapel Hill, NC: University of North Carolina.
31. Rubinstein, M. (1976). 'The strong case for the generalized logarithmic utility model as the premier model of financial markets', Journal of Finance, vol. 31(2), pp. 551-71.
32. Servan-Schreiber, E., Wolfers, J., Pennock, D.M. and Galebach B. (2004). 'Prediction markets: does money matter?'Electronic Markets, vol. 14(3), pp. 243-51.
33. Snyder, W.W. (1978). 'Horse racing: testing the efficient markets model', Journal of Finance, vol. 33(4), pp. 1109-18.
34. Sobel, R.S. and Raines, T.S. (2003). 'An examination of the empirical derivatives of the favourite-longshot bias in racetrack betting', Applied Economics, vol. 35(4), pp. 371-85.
35. Sonnemann, U., Camerer, C., Fox, C.R., and Langer, T. (2011). 'Psychological biases affect economic market prices', Working Paper, University of Muenster.
36. Terrell, D. (1998). 'Biases in assessments of probabilities: new evidence from greyhound races', Journal of Risk and Uncertainty, vol. 17(2), pp. 151-67.
37. Thaler, R. and Ziemba, W. (1988). 'Parimutuel betting markets: racetracks and lotteries', Journal of Economic Perspectives, vol. 2, pp. 161-74.
38. Williams, L.V. and Paton, D. (1997). 'Why is there a favourite-longshot bias in British racetrack betting markets', Economic Journal, vol. 107(440), pp. 150-8.
39. Wolfers, J. and Zitzewitz, E. (2006a). 'Five open questions about prediction markets', Federal Reserve Bank of San Francisco Working Paper Series.
40. Wolfers, J. and Zitzewitz, E. (2006b). 'Interpreting prediction market prices as probabilities', Working Paper No.11, Federal Reserve Bank of San Francisco.