Prediction markets

9 January 2008 at 12:17 pm 2 comments

| Steve Phelan |

One of the memes rattling round the blogosphere today is the failure of prediction markets to predict Hillary Clinton’s win in New Hampshire – in fact, to radically write off her prospects after the Iowa outcome. Paul Krugman goes so far as to entitle his blog on the subject “nobody knows anything” (as opposed to Surowiecki’s wisdom of crowds).

Surowiecki argues that wise crowds need: a) diversity of opinion, b) independence, c) decentralization (i.e. local knowledge), and d) a mechanism to aggregate private judgments.  Which leads me to ask: What is the missing element in prediction markets? To the degree that investors in prediction markets are receiving their information from common national media sources then it would seem that diversity, independence, and decentralization are missing.

Entry filed under: Former Guest Bloggers, Myths and Realities.

Economists on Interdisciplinarity The End of an Academic

2 Comments Add your own

  • 1. Dirk Friedrich  |  10 January 2008 at 7:04 am

    In my opinion there is a lack of diversity of opionion. People who partake in prediction markets are the ones who think of themselves as informed and exercising rational judgment when voting for one candidate or the other. However, politicians who want to be successful in democracy need to appeal to emotion and instinct to recruit potential followers. In fact, those people come to cast their vote, but never intellectually scrutinize the positions of their political idols. Further, future markets don’t appeal to everyone. Of course, there is some overlap between both groups. But the difference could account for the “failure” of prediction markets. In truth they don’t fail.

  • 2. Todd W.  |  11 January 2008 at 4:41 pm

    Were there prediction markets that were specifically focused on the NH primaries? For instance, Iowa Electronic Mkts is specifically a nomination market, predicting the final outcome of the nomination process, not specific primary results.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Trackback this post  |  Subscribe to the comments via RSS Feed


Authors

Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts

Guests

Former Guests | posts

Networking

Recent Posts

Recent Comments

Categories

Feeds

Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

%d bloggers like this: