Mises and prediction markets: Can markets forecast?

Abstract

Ludwig von Mises’s methodological position is unique because it combines apriorism with qualitative empirical approach. Nonetheless, Mises’s adherents and detractors continue to characterize his apriorism as rejecting forecasting. This paper argues that a prediction market is a traditional market for forward-looking information; it leverages subjective knowledge and aggregates information via the market process to effectively solve the Hayekian knowledge problem. We argue that Austrian economists should embrace prediction markets as a powerful method of forecasting rooted in human action.