The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Prediction Markets

  • Justin Wolfers
  • Eric Zitzewitz
Reference work entry


Prediction markets, sometimes referred to as ‘information markets’, ‘idea futures’ or ‘event futures’, are markets where participants trade contracts whose payoffs are tied to a future event, thereby yielding prices that can be interpreted as market-aggregated forecasts. This article summarizes the recent literature on prediction markets, highlighting both theoretical contributions that emphasize the possibility that these markets efficiently aggregate dispersed information, and the lessons from empirical applications which show that market-generated forecasts typically outperform most moderately sophisticated benchmarks. Along the way, we highlight areas ripe for future research.


Constant absolute risk aversion (CARA) Decision markets Efficient market hypothesis Favourite-longshot bias Forecasting Gallup Poll Information aggregation Iowa Electronic Market Prediction Prediction markets Probability Spread betting 

JEL Classifications

D7; D8 
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Thanks to Colin Camerer, Robin Hanson, Ryan Oprea, Charles Plott, Paul Rhode, and Erik Snowberg for very helpful comments.


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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Justin Wolfers
    • 1
  • Eric Zitzewitz
    • 1
  1. 1.