Economists love prediction markets and, perhaps not totally relatedly, are often put in charge of Latin American countries. But political prediction markets gave Clinton an 8% chance of winning in New Hampshire and pegged the GOP's chance at holding on to the Senate in 2006 at 85% three hours after the polls had closed. Why are they often wrong? And why did Anil Hara claim that there's no evidence that economists lead countries successfully?
Troubling questions, I suppose. But luckily, economists have their defenders. Here's Cass Sunstein, a law professor, on why prediction markets actually do work (the takeaway is "sure they are sometimes wrong, but sometimes they are not") and Daniel Drezner, a political scientist, on why it is possible that economists are effective leaders (the takeaway is "correlation isn't the same thing as causation").
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1. Posted by Michael Risch on January 10, 2008 @ 12:19 | Permalink
Even if prediction markets are wrong, they are still useful information. They show information gaps or other market failures. The interesting thing to study is when they are right v. when they are wrong, and why.
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