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Does Money Matter? Examining Accuracy and Incentives in Prediction Markets

Explore the role of money in prediction markets and its impact on accuracy. Discover the competitive advantage of markets over individual experts in predicting outcomes.

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Does Money Matter? Examining Accuracy and Incentives in Prediction Markets

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  1. Does Money Matter?Emile Servan-SchreiberNewsFutures, Inc

  2. It’s an important issue • When you want to bring markets within companies; • For US-based public-policy markets; • How much accuracy is at stake when you forgo real-money for play-money?

  3. The Challenge vs

  4. More than 200 individual games New England Patriots over Philadelphia Eagles Price = Probability Acquire or lose points through a scoring rule

  5. Tradesports vs. NewsFutures(predicting NFL games) Servan-Schreiber, Wolfers, Pennock & Galebach (2004) Prediction Markets: Does Money Matter? Electronic Markets, 14(3).

  6. Tradesports vs. NewsFutures(predicting NFL games) Servan-Schreiber, Wolfers, Pennock & Galebach (2004) Prediction Markets: Does Money Matter? Electronic Markets, 14(3).

  7. Real Cash vs. Play Money(predicting NFL games) Using real-money doesn’t buy any additional accuracy as long as the traders are knowledgeable and motivated (upside). Servan-Schreiber, Wolfers, Pennock & Galebach (2004) Prediction Markets: Does Money Matter? Electronic Markets, 14(3).

  8. Markets vs Individual Experts NewsFutures’ markets finished in the top 0.4% Competing against 1810 individual NFL experts In the Probability Football contest (rank = 6th / 1810) Servan-Schreiber, Wolfers, Pennock & Galebach (2004) Prediction Markets: Does Money Matter? Electronic Markets, 14(3).

  9. Markets vs Individual Experts Thanks to their consistent accuracy over the entire season, the markets progressively beat most individual “experts”. Servan-Schreiber, Wolfers, Pennock & Galebach (2004) Prediction Markets: Does Money Matter? Electronic Markets, 14(3).

  10. Google IPO Market

  11. Bush 2004 Contract 50% chance A Bush “blowout” or “too-close-to-call”?

  12. An unusually close election • Smallest popular vote margin of victory (2.7%) for an incumbent president since 1828. • It all came down to 60,000 votes in Ohio.

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