Biology Reference
In-Depth Information
con fere nce fe e s, e ducat ion-relate d t ravel co st s, a nd s of for t h. Mo st of t he hea lt h-
related markets our group has run have operated in this fashion.
8.3.3 examples of Prediction Markets
The concept of a prediction market was first developed by investigators at the
University of Iowa's Tippie College of Business; the original prediction mar-
ket, the Iowa Electronic Market (IEM), opened in 1988 and still operates today.
Unlike other prediction markets, the IEM's mission is not financial gain, but
research and teaching. Currently, it is the only prediction market authorized
by the Commodity Futures Trading Commission to permit traders to invest
their own money. That authorization is in the form of a “no-action letter,”
which spells out strict conditions regarding the size of investments permit-
ted, the number and nature of traders allowed, and the topics on which the
markets can be based. Since 1988, the IEM has run markets for currency prices,
stock options, elections around the world, and movie box office receipts, and it
has achieved a prediction record superior to alternative methods such as opin-
ion polls (Forsythe et al. 1992, Forsythe et al. 1991, Forsythe et al. 1997). In his
acceptance speech after winning the Nobel Prize in Economics in 2002, Vernon
Smith cited the IEM as providing one of the best demonstrations of how mar-
kets efficiently aggregate information about future events (Smith 2003).
Experimental prediction markets have been used successfully to fore-
cast future events in several settings. For example, Hewlett-Packard has
used experimental markets to forecast sales of its printers, and those mar-
kets outperformed the company's own statistical sales forecasts (Plott 2000).
Similarly, The Hollywood Stock Exchange has accurately predicted Oscar
winners and opening-weekend movie box-office receipts (Pennock et al.
2001). The Foresight Exchange operated markets to predict a variety of events
such as whether specific mathematical conjectures will be proved (Pennock
et al. 2001). More recently, Google has used internal prediction markets with
employees as traders to help guide business decisions (Cowgill et al. 2008).
One set of contracts, for example, served to predict how many people would
sign up for their free e-mail service. Similarly, Best Buy has used these mar-
kets to predict what consumer electronic products will be in high demand
(Dvorak 2008). Indeed, a small industry has evolved to provide software and
consulting to businesses seeking to use prediction markets as a management
tool. NewsFutures and Inkling are two examples of such firms.
8.3.4 Prediction Markets for Public Health
Most prediction markets currently focus on helping businesses make deci-
sions, and not surprisingly, most health applications of prediction markets
involve the pharmaceutical industry. Applications include, for example, pre-
dicting demand for their drugs. To investigate other public health applications
for prediction markets, we started a seasonal influenza market in the state
