Statistical Tests of Real‐Money versus Play‐Money Prediction Markets

Abstract

Prediction markets are mechanisms that aggregate information such that an estimate of the probability of some future event is produced. It has been established that both real‐money and play‐money prediction markets are reasonably accurate. An SPRT‐like test is used to determine whether there are statistically significant differences in accuracy between the two markets. The results establish that real‐money markets are significantly more accurate for non‐sports events. We also examine the effect of volume and whether differences between forecasts are market specific.

Keywords:

• prediction markets
• sequential probability ratio test