The Iowa Electronic Markets: Stylized Facts and Open Issues
Joyce E. Berg and Thomas A. Rietzin Information Markets: A New Way of Making Decisions
Edited by R. Hahn and P. Tetlock
AEI/Brookings Center for Regulatory Studies, 2006
pages 142-169
- Abstract
Prediction markets, markets in which contracts are specifically designed so that prices forecast particular future events, appear poised for acceptance as alternatives to more conventional forecasting methods. One frequently mentioned reason to believe such markets could be successful forecasting tools is the predictive accuracy of the presidential-election markets conducted by the Iowa Electronic Markets (IEM). Although the Iowa Electronic Markets have proved quite accurate in forecasting through the years, they do not behave in ways one might expect from efficient markets populated by rational traders. Large market volumes stand in contrast to Milgrom and Stokey's 1982 no-trade theorem. IEM traders exhibit biases and lack self-insight. Some traders claim attempts to manipulate IEM prices. Nor are these markets simply polls - IEM traders are clearly not a representative sample of the population. Yet IEM prices respond quickly to information, are accurate in both a relative and absolute sense immediately before the event and well in advance, and appear to exhibit little bias. We investigate some intriguing results from the Iowa Electronic Markets, using the 2004 election markets as our primary examples, and examine the potential for future research. - Published Paper
- Information Markets: A New Way of Making Decisions (R. Hahn and P. Tetlock, editors)
