• Abstract
• Keywords
• Article
• Types of prediction market
• Prediction markets in theory: information aggregation
• Prediction markets in practice
• Economic analysis of prediction market prices
• Conclusion
• Bibliography

## prediction markets

From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by

### Abstract

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.