Prediction Markets

Planet2025 Network and its strategic partner Newsfutures are exploring the potential of prediction markets for “environmental or sustainability futures” to improve decision and policy making, to raise awareness of probable environmental events and associated risks, and to mobilize financial resources for investment in public and private sector activities that regenerate the planet.

• Sustainable futures markets for 2009: come and visit us again soon!

Prediction markets are speculative markets created for the purpose of making predictions. Assets are created whose final cash value is tied to a particular event (e.g., will the next US president be a Democrat) or parameter (e.g., total sales next quarter). The current market prices can then be interpreted as predictions of the probability of the event or the expected value of the parameter. Prediction markets are thus structured as betting exchanges, without any risk for the bookmaker.

Prediction Markets 101

Emile Servan Schreiber, CEO Newsfutures

Other names for prediction markets include predictive markets, information markets, decision markets, idea futures, event derivatives and virtual markets.

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.

Many prediction markets are open to the public. Betfair is the world’s biggest prediction exchange, with around $28 billion traded in 2007. Intrade is a for-profit company with a large variety of contracts not including sports. The Iowa Electronic Markets is an academic market examining elections where positions are limited to $500. TradeSports are prediction markets for sporting events. The simExchange, Hollywood Stock Exchange, NewsFutures, the Popular Science Predictions Exchange, Hubdub and the Foresight Exchange Prediction Market are virtual prediction markets where purchases are made with virtual money. Bet2Give is a charity prediction market where real money is traded but ultimately all winnings are donated to the charity of the winner’s choice.

More on Prediction Markets (from Wikipedia): History | Accuracy | Sources of inaccuracy | Other issues | Legality | Controversial incentives | Use by corporations | See also | References | Academic Papers | External Resources