Prediction markets: five questions that need resolving

I've previously mentioned the New Palgrave guide to prediction markets written by Justin Wolfers at the Wharton School and University of Pennsylvania and Eric Zitzewitz from Stanford's Graduate School of Business. Now they have written another paper, Five Open Questions About Prediction Markets. Here is their abstract:

Interest in prediction markets has increased in the last decade, driven in part by the hope that these markets will prove to be valuable tools in forecasting, decisionmaking and risk management--in both the public and private sectors. This paper outlines five open questions in the literature, and we argue that resolving these questions is crucial to determining whether current optimism about prediction markets will be realized.

The NBER have just published it as Working Paper No. 12060 - but you can download a free version as San Francisco Fed Working Paper 2006-06 (PDF). Tyler Cowen at Marginal Revolution also has blogged on this paper; worth reading for the comments.

UPDATE: Jason Ruspini has posted a long post, Open Questions About Prediction Markets, which discusses the Wolfers and Zitzewitz paper and a whole range of related issues on his excellent weblog Risk Markets And Politics.

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The NBER have just published it as Working Paper No. 12060 - but you can download a free version

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