Another interesting experiment from Google: Using Prediction Markets to Track Information Flows: Evidence from Google
In Google’s terminology, a market asks a question (e.g., “how many users will Gmail have?”) that has 2‐5 possible mutually exclusive and completely exhaustive answers (e.g., “Fewer than X users”, “Between X and Y”, and “More than Y”). Each answer corresponds to a security that is worth a unit of currency (called a “Gooble”) if the answer turns out to be correct (and zero otherwise). Trade is conducted via a continuous double auction in each security.
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Google’s prediction markets are reasonably efficient, but did exhibit four specific biases: an
overpricing of favorites, short aversion, optimism, and an underpricing of extreme outcomes.
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Google’s prediction markets are reasonably efficient, but did exhibit four specific biases: an
overpricing of favorites, short aversion, optimism, and an underpricing of extreme outcomes.
Interesting paper. Prediction markets are an interesting attempt to use a market principles to gain insight into future prospects.
Related: Google Experiments Quickly and Often - Secrets of the World’s Best Companies
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“the no-change forecast was 34 percent more accurate at predicting oil prices in three months time, and 18 percent more accurate at predicting prices in a year’s time…”