Prediction markets and their potential role in biomedical research--a review

Abstract

Predictions markets are marketplaces for trading contracts with payoffs that depend on the outcome of future events. Popular examples are markets on the outcome of presidential elections, where contracts pay $1 if a specific candidate wins the election and $0 if someone else wins. Contract prices on prediction markets can be interpreted as forecasts regarding the outcome of future events. Further attractive properties include the potential to aggregate private information, to generate and disseminate a consensus among the market participants, and to offer incentives for the acquisition of information. It has been argued that these properties might be valuable in the context of scientific research. In this review, we give an overview of key properties of prediction markets and discuss potential benefits for science. To illustrate these benefits for biomedical research, we discuss an example application in the context of decision making in research on the genetics of diseases. Moreover, some potential practical problems of prediction market application in science are discussed, and solutions are outlined.