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The articles introduced below reveal the link between traditional financial markets
and prediction markets, to which online sports betting markets not only belong,
but are major constituents. The articles also show that prediction markets are becoming
a widespread resource for decision makers within organizations. Given the importance
of financial markets in the functioning of the world economy, not to mention the
importance of organizations in general, it will be interesting see what effect this
development will have on gaming legislation as the message reaches popular media.
Interpreting Prediction Market Prices as Probabilities
Wolfers, J., and Zitzewitz, E., NBER Working Paper #12200, 2007.
Prediction markets are an increasingly widely used information aggregation device
in academic research and public policy discussions, and the prices of contracts
tied to events as diverse as the re-election of President Bush, the ouster of Saddam
Hussein, next month’s non-farm payrolls number, or the success of specific
products have...
Prediction Markets in Theory and Practice
Wolfers, J., and Zitzewitz, E., NBER Working Paper No. 12083, 2006.
Prediction Markets, sometimes referred to as "information markets," "idea futures"
or "event futures", are markets where participants trade contracts whose payoffs
are tied to a future event, thereby yielding prices that can be interpreted as market-aggregated
forecasts. This article summarizes the recent literature on prediction markets,
highlighting both theoretical contributions …
Five Open Questions About Prediction Markets
Wolfers, J., and Zitzewitz, E., NBER Working Paper #12060, 2006.
Interest in prediction markets has increased in the last decade, among participants,
private sector market operators, policymakers and academics. For instance, markets
on the 2004 U.S. election were far more numerous and liquid than they were in 2000.
Whereas past media coverage of these markets often treated them as curiosities …
Prediction Markets
Wolfers, J., and Zitzewitz, E., Journal of Economic Perspectives, 18(2), 2004.
In July 2003, press reports began to surface of a project within the Defense Advanced
Research Projects Agency (DARPA), a research think tank within the Department of
Defense, to establish a Policy Analysis Market that would allow trading in various
forms of geopolitical risk. Proposed contracts were based on indices …
Prediction Markets: Does Money Matter?
Galebach, B., Pennock, D., Servan-Schreiber, E., and Wolfers, J., Electronic Markets,
14(3), 2004.
The accuracy of prediction markets has been documented both for markets based on
real money and those based on play money. To test how much extra accuracy can be
obtained by using real money versus play money, we set up a real-world online experiment
pitting the predictions of TradeSports.com …
Historical Prediction Markets: Wagering on Presidential Elections
Rhode, P. and Strumpf, K., 2003.
Interest in using markets to forecast non-financial outcomes have grown with the
rising popularity of internet wagering and the proposed establishment of a terrorism
futures exchange. While many treat such prediction markets as recent phenomena,
wagering on political outcomes has a long tradition in the United States. This paper
analyzes …
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