The wisdom of large and small crowds: Evidence from repeated natural experiments in sports betting

Prediction markets have proved excellent tools for forecasting, outperforming experts and polls in many settings. But do larger markets, with a wider participation, perform better than smaller markets? This paper analyses a series of repeated natural experiments in sports betting. The Queen’s Club Tennis Championships are held every year, but every other year the Championships clash with a major soccer tournament. We find that tennis betting prices become significantly less informative when participation rates are affected adversely by the clashing soccer tournament. This suggests that measures which increase prediction market participation may lead to a greater forecast accuracy.