Issues in Economic Systems and Institutions: Information Aggregation
- Justin Wolfers and Eric Zitzewitz (2004): “Prediction Markets.” Working Paper 10504, NBER.
- David Austen-Smith and Jeff Banks (1996): “Information Aggregation, Rationality and the Condorcet Jury Theorem.” American Political Science Review, 90, 34 – 45.
- Timothy Feddersenand Wolfgang Pesendorfer (1998): “Convicting the Innocent: the Inferiority of Unanimous Jury Verdicts.” American Political Science Review, 92, 23 – 35.
- Sushil Bikhchandani, David Hirshleifer and Ivo Welch (1992): “A Theory of Fads, Fashion, Custom and Cultural Change As Informational Cascades.” Journal of Political Economy, 100(5), 992 – 1026.
Here are some useful survey articles on information cascades, voting and prediction markets. They are not too technical and cover a lot of conceptual ground:
- Sushil Bikhchandani, David Hirshleifer and Ivo Welch (1998): “Learning from the Behavior of Others: Conformity, Fads and Information Cascades.” Journal of Economic Perspectives, 12(3), 151-170.
- Thomas Piketty (1999): “The Information Aggregation Approach to Political Institutions.” European Economic Review, 43, 791-800.
- Timothy Feddersen and Wolfgang Pesendorfer (1999): “Elections, Information Aggregation and Strategic Voting.” Proceedings of the National Academy of Sciences, 96, 10572-10574.
A number of notable economists make a case for deregulating prediction markets:
Websites for some prominent electronic trading and betting markets. They have data, so you can check how the markets performed in predicting the results of elections and other events:
- Iowa Electronic Markets
- Intrade (currently down due to investigations into “financial irregularities”)
Two popular books on the madness and wisdom of crowds. MacKay’s book is an old classic, Surowiecki’s book is a modern bestseller and very well written.
- Charles Mackay: Memoiors of Extraordinary Popular Delusions and the Madness of Crowds
- James Surowiecki: The Wisdom of Crowds: Why the Many are Smarter than the Few
Two videos related to cascades and information aggregation: