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Incentives In Prediction Markets

Author

Listed:
  • Leonard Wolk
  • Ronald Peeters
Abstract
Prediction markets are powerful devices to forecast outcomes of future events. Information from the public domain is gradually absorbed into contract prices that directly translate into likelihoods of future events. The importance of monetary incentives on the aggregation of the traders' beliefs is not yet well understood. By conducting time series analysis on four prediction markets covering the 2008 presidential election in the U.S., we find that the trends for play-money and real-money markets fail to co-move for a substantial portion of the traded contracts, despite of the presence of a market maker who aligns trades between the two markets.

Suggested Citation

  • Leonard Wolk & Ronald Peeters, 2012. "Incentives In Prediction Markets," Journal of Prediction Markets, University of Buckingham Press, vol. 6(2), pages 47-58.
    • Handle: RePEc:buc:jpredm:v:6:y:2012:i:2:p:47-58
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    More about this item

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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