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Social and Behavioral Sciences Commons

Open Access. Powered by Scholars. Published by Universities.®

2009

Market Design

Finance

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Full-Text Articles in Social and Behavioral Sciences

Prediction Markets To Forecast Electricity Demand, Peter Cramton, Luciano De Castro Mar 2010

Prediction Markets To Forecast Electricity Demand, Peter Cramton, Luciano De Castro

Luciano I. de Castro

Forecasting electricity demand for future years is an essential step in resource planning. A common approach is for the system operator to predict future demand from the estimates of individual distribution companies. However, the predictions thus obtained may be of poor quality, since the reporting incentives are unclear. We propose a prediction market as a form of forecasting future demand for electricity. We describe how to implement a simple prediction market for continuous variables, using only contracts based on binary variables. We also discuss specific issues concerning the implementation of such a market.