Prediction markets: an experimental approach to forecasting cattle on feed-Reference-Cited by-同舟云学术

Prediction markets: an experimental approach to forecasting cattle on feed

Published:2010-11-09 Issue:3 Volume:70 Page:414-426
ISSN:0002-1466
Container-title:Agricultural Finance Review
language:en
Short-container-title:

Author:

Karina Gallardo R.,Wade Brorsen B.,Lusk Jayson

Abstract

PurposeThe purpose of this paper is to use prediction markets to forecast an agricultural event: United States Department of Agriculture's number of cattle on feed (COF). Prediction markets are increasingly popular forecast tools due to their flexibility and proven accuracy to forecast a diverse array of events.Design/methodology/approachDuring spring 2008, a market was constructed comprised of student traders in which they bought and sold contracts whose value was contingent on the number of COF to be reported on April 18, 2008. During a nine‐week period, students were presented three types of contracts to forecast the number of COF. To estimate forecasts a uniform price sealed bid auction mechanism was used.FindingsThe results showed that prediction markets forecasted 11.5 million head on feed, which was about 1.6 percent lower than the actual number of COF (11.684 million). The prediction market also fared slightly worse than analysts' predictions, which on average suggested there would be about 11.795 million head (an over‐estimate of about 1 percent).Originality/valueThe contribution of this study was not to provide conclusive evidence on the efficacy of using prediction markets to forecast COF, but rather to present an empirical example that will spark interest among agricultural economists on the promises and pitfalls of a research method that has been relatively underutilized in the agricultural economics literature.

Publisher

Emerald

Subject

Agricultural and Biological Sciences (miscellaneous),Economics, Econometrics and Finance (miscellaneous)

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