Prediction Market Accuracy in the Long Run
Joyce E. Berg, Forrest D. Nelson and Thomas A. Rietz
International Journal of Forecasting
Volume 24, Issue 2, April-June 2008, Pages 283-298
"Prediction markets" are designed specifically to forecast events such as elections.
Though election prediction markets have been being conducted for almost twenty years,
to date nearly all of the evidence on efficiency compares election eve forecasts
with final pre-election polls and actual outcomes. Here, we present evidence that
prediction markets outperform polls for longer horizons. We gather national polls
for the 1988 through 2004 U.S. Presidential elections and ask whether either
the poll or a contemporaneous Iowa Electronic Markets vote-share market
prediction is closer to the eventual outcome for the two-major-party vote split.
We compare market predictions to 964 polls over the five Presidential elections
since 1988. The market is closer to the eventual outcome 74% of the time.
Further, the market significantly outperforms the polls in every election when
forecasting more than 100 days in advance.
- Published Paper