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

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 SPRTlike 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 nonsports events. We also examine the effect of volume and whether differences between forecasts are market specific.