Mises and prediction markets: Can markets forecast?
Published online: 23 October 2013
Springer Science+Business Media New York 2013
Abstract Ludwig von Mises’s methodological position is unique because it combines
apriorism with qualitative empirical approach. Nonetheless, Mises’s adherents and detrac-
tors 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.
Keywords Ludwig von Mises
JEL Codes B53
Ludwig von Mises’s methodological position on forecasting continues to stir a debate
on the compatibility between the Austrian economics and empirical analysis (Powell
and Stringham 2012; Leeson and Boettke 2006). This more recent Methodenstreit is
centered on the issue of quantifying uncertainty.
Neoclassical economics treats all
uncertainty as quantifiable, while a fairly large fraction of modern Austrians support
the Misesian position against quantifiable probability (Caplan 1999).
apriorism rejects the quantifiable prediction of unique events – including most human
actions – because quantifiable probability is meaningless in a world of structural
Rev Austrian Econ (2015) 28:41–52
Please, see Block (1999, 2003), Caplan (1999, 2001, 2003), and Hülsmann (1999).
See, for example, Hoppe (2007, 1997), Kirzner (1997), O’Driscoll and Rizzo (1996), and Vaughn (1994).
When Caplan (2001) discusses the Austrian tradition of empirical analysis, he suggests delineating the term
“Misesian” among the Austrian economists. Caplan uses the term “Misesian” in reference to the strand of
Austrian economics influenced by both Mises and Rothbard that rejects empirical (a posteriori) analysis of
We would like to thank William Barnett II, Walter Block, Daniel J. D’Amico, and anonymous referee for
L. Krasnozhon (*)
Loyola University New Orleans, 6363 St. Charles Ave., Box 15, New Orleans, LA 70118, USA