prediction markets (also known as predictive markets, information markets, decision markets, idea futures, event derivatives, or virtual markets) are speculative markets created for the purpose of making predictions. the current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter. for example, a prediction market security might reward a dollar if a particular candidate is elected, such that an individual who thinks the candidate had a 70% chance of being elected should be willing to pay up to 70 cents for such a security. people who buy low and sell high are rewarded for improving the market prediction, while those who buy high and sell low are punished for degrading the market prediction. evidence so far suggests that prediction markets are at least as accurate as other institutions predicting the same events with a similar pool of participants.graefe, a. & armstrong, j.s. (2011). comparing face-to-face meetings, nominal groups, delphi and prediction markets on an estimation task, international journal of forecasting, 27(1), 183-195 ==history== economic theory for the ideas behind prediction markets can be credited to friedrich hayek in his 1945 article "the use of knowledge in society" and ludvig von mises in his "economic calculation in the socialist commonwealth". modern economists agree that mises' argument combined with hayek's elaboration of it, is correct ("biography of ludwig edler von mises (1881â1973)," the concise encyclopedia of economics). one of the oldest and most famous is the university of iowa's iowa electronic markets, introduced during the 1988 u.s. presidential election. the hollywood stock exchange, a virtual market game established in 1996 and now a division of cantor fitzgerald, lp, in which players buy and sell prediction shares of movies, actors, directors, and film-related options, correctly predicted 32 of 2006's 39 big-category oscar nominees and 7 out of 8 top category winners. hedgestreet, designated in 1991 as a market and regulated by the commodity futures trading commission, enables internet traders to speculate on economic events. prediction markets have a long and colorful lineage. betting on elections was common in the u.s. until at least the 1940s, with formal markets existing on
Prediction_markets Social_information_processing