The Real Power of Artificial Markets

A research study on the efficiency and forecast accuracy of market games on the web
David M. Pennock, Steve Lawrence, C. Lee Giles, Finn Årup Nielsen

Commentary: The Good Side of the Terror Futures Idea (Yes, There Is One)


The real power of artificial markets, Science, 291(5506): 987-988, February 9, 2001

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Extracting collective probabilistic forecasts from web games, Proceedings of the 7th ACM SIGKDD International Conference on Knowledge Discovery and Data Mining (KDD-2001), to appear, San Francisco, CA, August 2001

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The power of play: Efficiency and forecast accuracy in web market games, NEC Research Institute Technical Report #2000-168

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Key results


Game markets can behave remarkably like real markets, even mimicking their ability to forecast future events.

Foresight Exchange

The Foresight Exchange (FX) is a play-money market where traders bet on the outcomes of unresolved scientific and societal questions. We find that past FX prices correlate strongly with observed outcome frequencies. So, for example, among all securities priced around 0.2, roughly one in five actually do come true. As of February 18, 2001, FX prices imply a 77% chance that physicists will discover a Higgs boson particle by 2005 and a 14% chance that HIV will be curable by 2005, among assessments for many other future events.

Hollywood Stock Exchange

The Hollywood Stock Exchange (HSX) is a play-money market where traders bet on the box office success of movies and on the outcomes of major entertainment awards (e.g., the Oscars). We find that prices of movie stocks are good predictors of actual box office performance, and that prices of award securities serve as accurate likelihood assessments of eventual winners. HSX forecast accuracy is comparable to or better than human expert accuracy.


Arbitrage opportunities on HSX tend to disappear over time, as they do in real-money markets.


Existing market games can serve as reasonably reliable sources of forecast information. New market games can be established in areas of particular concern or interest as a means to collect pertinent information. Economists may consider game markets as an alternative platform for experiments in arenas where real markets do not exist.


Game markets are easier and cheaper to set up than real markets, with few regulatory or legal impediments. Markets on the Web benefit from worldwide audience potential.


CNN Money, March 11, 2003, Trading the Oscars, Justin Lahart


New Scientist, March 23, 2002, pp. 40-43, Ask the Oracle, Robert Matthews

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Discover Magazine, 22(7): 15, July 2001, Shares of Julia Roberts, closing up nine points, Fenella Saunders source   |   copy
Beyond 2000, February 2001, Exchanging the future

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E!online, March 23, 2001, Oscar Forecast: Release the Wonks!, Mark Armstrong source   |   copy
New York Times, July 5, 2001, Play money? Not to these news investors, Sara Robinson

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Tech TV, March 22, 2001, Putting stock in Oscar, Maria Godoy

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Local Business - Philadelphia, Mar 21, 2001, Research says Web is the place to play for real, Peg Brickley source   |   copy
Futurist Update, April 2001, Playing the market

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German Hot 100, Feb 20, 2001, Virtuelle Börsen: Nah an der Realität, Claus Moser copy
Heise Online, February 20, 2001, Studie: Virtuelle Märkte liefern zuverlässige Vorhersagen

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David M. Pennock, Overture Services, 74 N. Pasadena Ave., 3rd floor, Pasadena, CA 91103, USA. Email:

Steve Lawrence, NEC Research Institute, 4 Independence Way, Princeton, NJ 08540, USA.

C. Lee Giles, School of Information Sciences and Technology and Department of Computer Science and Engineering, Pennsylvania State University, University Park, PA 16801, USA.

Finn Årup Nielsen, Informatics and Mathematical Modelling, Technical University of Denmark, DK-2800 Lyngby, Denmark.