Some Prediction Market Scholarship

May 2nd, 2011

I am not sure how I missed this paper in my research, but Miriam Cherry and Robert Rogers published an article in the Northwestern Law Review that sketches a plan for a Supreme Court information market. Tiresias and the Justices: Using Information Markets to Predict Supreme Court Decisions:

This Article applies the emerging field of information markets to the prediction of Supreme Court decisions. Information markets, which aggregate information from a wide array of participants, have proven highly accurate in other contexts such as predicting presidential elections. Yet never before have they been applied to the Supreme Court, and the field of predicting Supreme Court outcomes remains underdeveloped as a result. We believe that creating a Supreme Court information market, which we have named Tiresias after the mythological Greek seer, will produce remarkably accurate predictions, create significant monetary value for participants, provide guidance for lower courts, and advance the development of information markets.

Additionally, Tom Bell, who has been leading the way on legal prediction market scholarship for some year, recently posted to SSRN a piece titled Government Prediction Markets: Why, Who, and How:

This paper describes how prediction markets can make governments smarter, cheaper, and more responsive to changing conditions. A prediction market resembles a stock exchange where traders buy and sell not shares of companies, but claims about future events. Academic and commercial use of prediction markets suggests that they offer a useful tool for encouraging, collecting, and quantifying widely scattered expertise. Government administrators have begun experimenting with prediction markets, too. Many questions remain, however, about the proper way to implement government prediction markets. This paper opens with a brief survey of the costs and benefits of government prediction markets. It then turns to ironing out the statutory and regulatory wrinkles occasioned by government prediction markets in general, and by federal executive prediction markets in particular. Government agencies should outsource the provision of prediction markets and let employees and outside contractors trade on them. To mitigate the legal risks raised by offering cash or other valuable consideration to traders, government prediction markets should host spot transactions in negotiable conditional notes, offer traders seed funding, and contractually mandate a minimum level of trading. The paper concludes by describing a three-step plan for putting prediction markets to work for the United States government and, through it, for the People.

I recently chatted with Tom, and has some great thoughts about prediction markets.