Interpreting the predictions of prediction markets
By: Charles F. Manski.
Contributors: National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10359; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10359.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "Participants in prediction markets such as the Iowa Electronic Markets trade all-or-nothing contracts that pay a dollar if and only if specified future events occur.  Researchers engaged in empirical study of prediction markets have argued broadly that equilibrium prices of the contracts traded are market probabilities' that the specified events will occur.  This paper shows that if traders are risk-neutral price takers with heterogenous beliefs, the price of a contract in a prediction market reveals nothing about the dispersion of traders' beliefs and partially identifies the central tendency of beliefs.  Most persons have beliefs higher than price when price is above 0.5, and most have beliefs lower than price when price is below 0.5.  The mean belief of traders lies in an interval whose midpoint is the equilibrium price.  These findings persist even if traders use price data to revise their beliefs in plausible ways.*Published: **This paper is only available in electronic format**"--National Bureau of Economic Research web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 1/18/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.