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Explaining variance in the accuracy of prediction markets

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  • Strijbis, Oliver
  • Arnesen, Sveinung

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.

Suggested Citation

  • Strijbis, Oliver & Arnesen, Sveinung, 2019. "Explaining variance in the accuracy of prediction markets," International Journal of Forecasting, Elsevier, vol. 35(1), pages 408-419.
    • Handle: RePEc:eee:intfor:v:35:y:2019:i:1:p:408-419
    DOI: 10.1016/j.ijforecast.2018.04.009
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    1. Hongzhou Chen & Xiaolin Duan & Abdulmotaleb El Saddik & Wei Cai, 2024. "Political Leanings in Web3 Betting: Decoding the Interplay of Political and Profitable Motives," Papers 2407.14844, arXiv.org.

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