Information markets: Feasibility and performance

Abstract

Information markets, where participants trade assets linked to future events, have shown remarkable accuracy in predicting outcomes, from elections to corporate events. However, the focus on prediction accuracy alone is too narrow. A broader perspective should consider the feasibility of information markets, including implementation costs, perceived legitimacy, and potential information leakage. This paper compares information markets to other information aggregation mechanisms, such as expert opinions, polls, and group deliberation, to provide a comprehensive evaluation of their strengths and weaknesses. The findings suggest that the optimal mechanism depends on the context, including the nature of the event, the sensitivity of the information, and the need for explanations alongside predictions.