Prediction Market

These speculative markets are created for the purpose of making predictions. In these markets a cash value is tied to a particular event or parameter. The market price can fluctuate like the price of any security. The predictions of the investors in these markets are often very accurate. The Iowa Electronic Market has predicted the results of the American presidential elections better than traditional polls. Players in the prediction market are forced to do research to make better informed decisions. One of the biggest weaknesses in prediction markets is distortion of the market probabilities. Large speculations can cause the market to be very volatile, and hurt the credibility of the predictions. I tend to believe that directly asking a group of participants to make these predictions may lead to better results.