November 05, 2004
Setting the election line
Contracts for tangible goods are one thing; contracts for terrorist attacks or election outcomes are something different. Yet markets in contracts involving such things are increasingly being seen as a way to improve predictions of the future. In a new National Bureau of Economic Research Working Paper, Can Markets Predict the Future?, the authors explore how and why the futures market seems to beat predictions both of polls and of experts:
Charting the pricebids for the past four presidential elections, the data show that as election day drew nearer, the prediction markets' projected candidate vote shares grows more accurate. Prediction markets also beat appeared better calibrated than independent analysts on the probability of the ouster of Saddam Hussein. The Hollywood Stock Exchange likewise has proved highly accurate in predicting opening weekend box office success and Oscar winners.
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