The role of prediction markets
Analysts have relied upon prediction markets for a long time, but it's relatively recently that they have been utilised as a custom-built tool. It is widely acknowledged that the best guess of the dispersed and tacit knowledge of the market can routinely beat "expert" judgment. You don't need to believe that the Efficient Market Hypothesis (EMH) holds to be suspicious of those who claim to "beat" it - whether it's picking stocks or betting on the World Cup.
We think markets provide the knowledge flows and incentive mechanisms that help us to understand the economy. We also think that prediction markets are an increasingly important tool to monitor and assess the performance of central banks.
See these previous posts:
- 2015 Q3 NGDP prediction market, November 2015
- UK NGDP Q4 2014 prediction market, February 2015
- New prediction market for 2014 Q1 NGDP, May 2013
- Towards a NGDP futures market, July 2012
Kaleidic Economics started by using Inkling Markets to create our own questions and make our own bets, and you can find all of our markets here. In late 2015 Inkling Markets were bought by Cultivate forecasts and their economy prediction markets were branded as AlphaCast.
A list of other providers:
For more information on prediction markets:
- Wolfers, J. and Zitzewitz, E. (2004) “Prediction markets”, Journal of Economic Perspectives, 18(2):107–126
- Manne, H.G., "The Welfare of American Investors" Wall Street Journal, June 13th 2006
- Hanson, R., “Insider Trading and Prediction Markets” (.pdf), March 2007
- Dye, Renee “The promise of prediction markets: A roundtable” McKinsey Quarterly, April 2008
- "An Uncertain Future" The Economist, Feb 26th 2009
- "Ford Motor Company Turns to Cloud-Based Prediction Market Software", HPC in the cloud, Feb 22nd 2011
- "Prediction market: Fed on track to hit 4% NGDP growth in 2015", Market Monetarist, March 10th 2015
- Kiviat, Barbara, “The End Of Management?” Time Magazine, July 6th 2004