Case 2.12 Using prediction markets in
business and public policy
Summary
This case study introduces prediction markets. It describes how this type of market
works, and gives examples of how prediction markets have been used by business and
government to reveal information of value to them.
Suggested answers
1 Can you think of other possible applications of prediction markets?
The case study describes a variety of applications. For example, the Iowa Electronic
Markets has since the late 1980s run a prediction market for US Presidential elections.
There are also the Hollywood Stock Exchange (www.hsx.com) which conducts
prediction markets for the success of newly released movies, and outcomes of events
such as the Oscars; and Goldman Sachs and Deutsche Bank have launched markets that
allow trade on future outcomes of key financial statistics such as employment and
business confidence.
2 Are there situations where you think it is possible that prediction markets might not
accurately forecast future events?
In order for prediction markets to accurately forecast future events it is important that
market participants have information that is valuable for predicting the outcome of the
event. Generally, we think that markets – such as prediction markets – will work well