Prediction markets: Does money matter?
Electronic Markets, vol. 14, no. 3, 2004, pp. 243–251
Abstract
The accuracy of prediction markets has been documented both for markets based on real money and those based on play money. To test how much extra accuracy can be obtained by using real money versus play money, we set up a real?world online experiment pitting the predictions of TradeSports.com (real money) against those of NewsFutures.com (play money) regarding American Football outcomes during the 2003?2004 NFL season. As expected, both types of markets exhibited significant predictive powers, and remarkable performance compared to individual humans. But, perhaps surprisingly, the play?money markets performed as well as the real?money markets. We speculate that this result reflects two opposing forces: real?money markets may better motivate information discovery while play?money markets may yield more efficient information aggregation. The accuracy of prediction markets has been documented both for markets based on real money and those based on play money. To test how much extra accuracy can be obtained by using real money versus play money, we set up a real?world online experiment pitting the predictions of TradeSports.com (real money) against those of NewsFutures.com (play money) regarding American Football outcomes during the 2003?2004 NFL season. As expected, both types of markets exhibited significant predictive powers, and remarkable performance compared to individual humans. But, perhaps surprisingly, the play?money markets performed as well as the real?money markets. We speculate that this result reflects two opposing forces: real?money markets may better motivate information discovery while play?money markets may yield more efficient information aggregation.
