First run as the Iowa Political Stock Market for the 1988 presidential election by Robert Forsythe, Forrest Nelson, George R. Neumann, and Jack Wright (Anatomy of an Experimental Political Stock Market, 1992), proposed as idea futures by Robin Hanson (1990), and surveyed by Justin Wolfers and Eric Zitzewitz (Prediction Markets, 2004), after Wall Street betting on presidential elections from 1868 to 1940.
Lets people trade contracts that pay out if a defined event happens, so the trading price becomes a running estimate of the event's probability.
When to reach for it
When the knowledge needed for a forecast, such as a ship date or a product's chances, is scattered across many people.
How it runs
- Write a question with an unambiguous resolution rule and date.
- Choose the contract: yes or no, a range, or several outcomes.
- Set the currency, the traders, and a market maker.
- Recruit people who hold pieces of the relevant knowledge.
- Read the price as a probability and track how it moves.
Where it sits in SOLVE eX
Go to the source
- Anatomy of an Experimental Political Stock Market, American Economic Review 82(5); the market ran for the 1988 election, 1992
- Could Gambling Save Science? Encouraging an Honest Consensus, Eighth International Conference on Risk and Gambling, London, 1990
- Prediction Markets, Journal of Economic Perspectives 18(2), 2004
- Historical Presidential Betting Markets, Journal of Economic Perspectives 18(2), by Paul W. Rhode and Koleman S. Strumpf, 2004