Prediction Markets Creating Truth

Prediction markets are often used for determining the results of elections. These prediction markets are also often correct which leads these tools be helpful for individuals who have stakes in which candidate wins. I think this may also be closely related to low voter turnout though. We have often discussed why voter turnouts in all elections are much lower than they used to be. According to Putnam, it is from the breakdown of social capital, but these prediction markets may also have an effect. Consider hearing that the prediction markets are almost always correct and they are predicting your candidate to lose. It would just reinforce the common thought of “my vote doesn’t matter” since the fate has already been decided. People are more likely to vote when they feel that their vote could affect the outcome of the election. Prediction markets are supposed to pool the voices of people who know how others and they will vote, but if that is not accurately portrayed, voters could think they have some inside information that makes their vote not influential.

The prediction markets could also be the result of information or product cascades. While individuals are making these predictions, they may be going on personal beliefs that may not apply to everyone. But when these prediction markets choose a product to be successful, the attention of the product or people listening to the prediction markets keep the success going by choosing the product they think everyone else will like. The product wasn’t necessarily going to be successful until the prediction market said it would. This would be the markets causing the success rather than predicting it. The prediction markets may work for both elections and products, but they might also be used to make the prediction come true rather than being a good guess of what would have before the market existed. It may be better to have the prediction markets be unknown to see if they are truly accurate or rather a product of people believing what the market says is true and then behaving accordingly. However, this would only be applicable to prediction markets for instances where the public controls the outcome and not situations where it is predicting an individual’s decision.