A market for trading forecasts: A wagering mechanism

Raja, A.A.; Pinson, Pierre; Kazempour, Jalal; Grammatico, S.

doi:10.1016/j.ijforecast.2023.01.007

A market for trading forecasts

Title

A market for trading forecasts: A wagering mechanism

Author

Raja, A.A. (TU Delft Team Sergio Grammatico)
Pinson, Pierre (Imperial College London; Technical University of Denmark)
Kazempour, Jalal (Technical University of Denmark)
Grammatico, S. (TU Delft Team Sergio Grammatico; TU Delft Team Bart De Schutter)

Date

2024

Abstract

In many areas of industry and society, including energy, healthcare, and logistics, agents collect vast amounts of data that are deemed proprietary. These data owners extract predictive information of varying quality and relevance from data depending on quantity, inherent information content, and their own technical expertise. Aggregating these data and heterogeneous predictive skills, which are distributed in terms of ownership, can result in a higher collective value for a prediction task. In this paper, a platform for improving predictions via the implicit pooling of private information in return for possible remuneration is envisioned. Specifically, a wagering-based forecast elicitation market platform has been designed, in which a buyer intending to improve their forecasts posts a prediction task, and sellers respond to it with their forecast reports and wagers. This market delivers an aggregated forecast to the buyer (pre-event) and allocates a payoff to the sellers (post-event) for their contribution. A payoff mechanism is proposed and it is proven that it satisfies several desirable economic properties, including those specific to electronic platforms. Furthermore, the properties of the forecast aggregation operator and scoring rules are discussed in order to emphasize their effect on the sellers’ payoff. Finally, numerical examples are provided in order to illustrate the structure and properties of the proposed market platform.

Subject

Elicitation of probabilities
Mechanism design
Predictive distribution
Scoring rules
Value of forecast
Wagering mechanism

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http://resolver.tudelft.nl/uuid:213602b7-9f32-496b-b262-586560ff46a6

DOI

https://doi.org/10.1016/j.ijforecast.2023.01.007

ISSN

0169-2070

Source

International Journal of Forecasting, 40 (1), 142-159

Part of collection

Institutional Repository