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Explaining variance in the accuracy of prediction markets


Strijbis, Oliver; Arnesen, Sveinung (2019). Explaining variance in the accuracy of prediction markets. International Journal of Forecasting, 35(1):408-419.

Abstract

Thus far, the focus in prediction market research has been on establishing its forecast accuracy relative to those of other prediction methods, or on the investigation of a few single sources of forecast error. This article is the first attempt to overcome the narrow focus of the literature by combining observational and experimental analyses of prediction market errors. It investigates the prediction error of a real money prediction market uusing a logarithmic market scoring rule for 65 direct democratic votes in Switzerland. The article distinguishes between prediction market error due to the setup of the market, features of the event to be predicted, and the participants involved, and finds that the prediction market accuracy varies primarily according to the setup of the market, with the features of the event and especially the composition of the participant sample hardly mattering.

Abstract

Thus far, the focus in prediction market research has been on establishing its forecast accuracy relative to those of other prediction methods, or on the investigation of a few single sources of forecast error. This article is the first attempt to overcome the narrow focus of the literature by combining observational and experimental analyses of prediction market errors. It investigates the prediction error of a real money prediction market uusing a logarithmic market scoring rule for 65 direct democratic votes in Switzerland. The article distinguishes between prediction market error due to the setup of the market, features of the event to be predicted, and the participants involved, and finds that the prediction market accuracy varies primarily according to the setup of the market, with the features of the event and especially the composition of the participant sample hardly mattering.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:06 Faculty of Arts > Institute of Political Science
Dewey Decimal Classification:320 Political science
Scopus Subject Areas:Social Sciences & Humanities > Business and International Management
Uncontrolled Keywords:evaluating forecasts, prediction markets, referenda, market scoring rules, vote shares
Language:English
Date:January 2019
Deposited On:18 Dec 2018 12:42
Last Modified:29 Jul 2020 08:32
Publisher:Elsevier
ISSN:0169-2070
OA Status:Closed
Publisher DOI:https://doi.org/10.1016/j.ijforecast.2018.04.009

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