In May 2007, a group of more than 20 economists, including Kenneth J. Arrow of Stanford University, Daniel Kahneman of Princeton University, and Robert J. Shiller of Yale University, on behalf of the AEI-Brookings Joint Center for Regulatory Studies, sent an open letter titled “Statement on Prediction Markets “to the US Congress. The letter suggested that prediction markets were effective forecasting tools and urged the government to “lower barriers to the creation and design of prediction markets by creating a safe harbor for certain types of small stakes markets.”5 A prediction market may be defined as a speculative market created for the specific purpose of making predictions.
It is based on the premise that the aggregate of the predictions made by a large number of people would be more accurate than predictions made by a small group of experts. Click here to read more…
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