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The Regulation and Value of Prediction Markets

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The Regulation and Value of Prediction Markets

Mercatus Center,

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The forecast could be bright for prediction markets.

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8

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Recommendation

Not everyone would be comfortable betting on a terrorist attack occurring by year-end, but, undoubtedly, better forecasts for such catastrophes could save lives. While many may be skeptical, prediction markets offer one of the best ways to benefit from the wisdom of crowds, says economist Adam Ozimek. getAbstract recommends this noteworthy overview of the state of US prediction markets and the regulatory obstacles they face.

Summary

Prediction markets let participants trade contracts that offer payouts based on future outcomes. These “event contracts” deal in news incidents, economic data, asset values or any other topic that has a clear outcome. While prediction markets offer financial benefits to traders, nontraders can use the information contained in contract prices to assess risk and probability. For instance, prices for contracts on election outcomes on the Iowa Electronic Markets and on Intrade provide current assessments of each candidate’s prospects. Studies show that these results are as good as or better than those obtained in election polling.

Traders use different types of ...

About the Author

Adam Ozimek is director of research and senior economist at Econsult Solutions, Inc.

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