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Prediction on Taiwan's Elections: Application and Empirical Studies of Prediction Markets

  •  Chen-Yuan Tung, Hsin-Yi Lin, Jih-Wen Lin, G. George Hwang, Tzu-Chuan Chou, Chia-Kai Liu, and Wen-Chih Chao
  •  2009 / 11  

    Volume 16, No.2

     

    pp.131-166

  •  10.6612/tjes.2009.16.02.131-166

Abstract

Prediction Markets have been widely used abroad to forecast election results for many years. It has also been proved that such a mechanism can accurately predict election outcomes. Therefore, this paper would like to understand whether prediction markets can accurately predict Taiwan's election outcomes. First, this paper introduces the mechanism of prediction markets and then applies the prediction market mechanism to predict Taiwan's elections. According to the data provided by the Exchange for Future Events, we find that the prediction markets mechanism has accurately predicted the outcomes of Taiwan's Taipei and Kaohsiung mayoral elections in 2006, and Taiwan's presidential election and legislator election in 2008. For these three elections, the predictive accuracy of prediction markets is higher than (unweighted) opinion poll surveys conducted during the same period. This paper then discusses the differences between prediction market and opinion survey.