Homework Assignment: Prediction Markets


Prediction markets gain more and more recognition as being a very accurate forecasting method. On this market place, people buy and sell shares around a specific future event. And from this trading in shares some kind of share price will develop. This share price can be seen as the probability factor on whether the event will occur or not.

There is some very interesting literature on this topic. Prediction markets are played with real money or with game/playing money. There has been some research whether the prediction accuracy is different between real money and playing money markets. The outcome was that there is no difference in accuracy between these markets. I think this is a very interesting outcome since I expected real money markets to be more accurate. Other research about this topic has shown that prediction markets are also effective in the medical world, by predicting the influenza activity in a particular community.

I found two examples which are very big players in prediction markets. The first one is the Hollywood Stock Exchange (HSX). This market trades on actors, directors and movies. By buying and selling shares, people predict the popularity of these features of the film industry. This first example is played with playing money while my second example is ‘played’ with real money. Intrade is another very famous prediction market, and this market makes predictions on all kind of things such as science, art, technology and elections. Both markets seem to be very interesting, as many people use it and its predictions are very accurate.

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