Abstract

Prediction markets are information aggregation mechanisms. Some analysts believe that prediction markets are more accurate in predicting future events than conventional forecasting tools and methods. The case discusses the mistrust that early thinkers had toward the intellectual capabilities of crowds and goes on to explain the changing view on prediction markets and their prognostic ability. The case then explains the working of prediction markets. Some examples of prediction markets are given next. The case then discusses the efficacy of prediction markets in gathering information and the factors that operators should keep in mind before setting up prediction markets. It also examines some criticisms, failures, and deficiencies of prediction markets. The case ends with a brief discussion on the future prospects for prediction markets.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• The case has the following objectives
• Understand the concept of prediction markets
• Gain insights into the working of prediction markets and the situations in which they can be used effectively
• Examine the efficacy of prediction markets as a forecasting tool
• Analyze the future prospects of prediction markets

Keywords

Prediction Markets, Forecasting Tool, Collective Wisdom, Information aggregation mechanism, Decision making, SimExchange, Iowa Electronic Markets, Hollywood Stock Exchange, Probability, HP, Yahoo!