Long-Term Prediction Markets
I have published a paper on Long-Term Prediction Markets in the Journal of Prediction Markets 6(3), December 2012, 43-61. Most prediction markets focus on events with a short time horizon such as forthcoming elections. Contracts are typically traded for periods measured in weeks, but rarely exceeding a year. There is great interest in using prediction markets for events with a long time horizon such as climate change outcomes. My paper develops an analytic framework for exploring the time horizon limitations of prediction markets and suggests a simple, practical solution. Market operators must compensate investors for the opportunity cost of investing in the market for long time periods.
Posted Thursday, January 24, 2013 at 09:30