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Second-generation prediction markets for information aggregation: a comparison of payoff mechanisms

Slamka, Christian, Jank, Wolfgang and Skiera, Bernd 2012, Second-generation prediction markets for information aggregation: a comparison of payoff mechanisms, Journal of forecasting, vol. 31, no. 6, pp. 469-489, doi: 10.1002/for.1225.

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Title Second-generation prediction markets for information aggregation: a comparison of payoff mechanisms
Author(s) Slamka, Christian
Jank, Wolfgang
Skiera, Bernd
Journal name Journal of forecasting
Volume number 31
Issue number 6
Start page 469
End page 489
Total pages 21
Publisher Wiley-Blackwell
Place of publication London, Eng.
Publication date 2012-09
ISSN 0277-6693
Keyword(s) prediction markets
preference markets
idea markets
forecasting
decision making
new product development
Summary Initial applications of prediction markets (PMs) indicate that they provide goodforecasting instruments in many settings, such as elections, the box office, orproduct sales. One particular characteristic of these ‘first-generation’ (G1) PMsis that they link the payoff value of a stock’s share to the outcome of an event.Recently, ‘second-generation’ (G2) PMs have introduced alternative mechanismsto determine payoff values which allow them to be used as preferencemarkets for determining preferences for product concepts or as idea markets forgenerating and evaluating new product ideas. Three different G2 payoff mechanismsappear in the existing literature, but they have never been compared. Thisstudy conceptually and empirically compares the forecasting accuracy of thethree G2 payoff mechanisms and investigates their influence on participants’trading behavior.We find that G2 payoff mechanisms perform almost as well astheir G1 counterpart, and trading behavior is very similar in both markets (i.e.trading prices and trading volume), except during the very last trading hours ofthe market. These results indicate that G2 PMs are valid instruments and supporttheir applicability shown in previous studies for developing new productideas or evaluating new product concepts.
Language eng
DOI 10.1002/for.1225
Field of Research 150599 Marketing not elsewhere classified
1403 Econometrics
Socio Economic Objective 970115 Expanding Knowledge in Commerce
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2011, John Wiley & Sons
Persistent URL http://hdl.handle.net/10536/DRO/DU:30091505

Document type: Journal Article
Collection: Department of Marketing
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