Prediction Markets in the Laboratory

The idea that there is wisdom from the collective has been forcefully described in “The Wisdom of the Crowds” by James Surowiecki, who argues that the aggregation of information in groups results in better decisions than those that are afforded by any single member of the group. Markets, like opinion polls, are one mechanism for aggregating disparate pieces of information. The aggregation properties of prices were first noted by Hayek (1945) and were formally examined by Muth (1961). In particular, Hayek argues that market prices serve the purpose of sharing and coordinating local and personal knowledge, while Muth shows that markets do not waste information and that the current price contains all the information available from market participants.

[1]  Robin Hanson,et al.  Combinatorial Information Market Design , 2003, Inf. Syst. Frontiers.

[2]  Kenneth Oliven,et al.  Suckers Are Born but Markets Are Made: Individual Rationality, Arbitrage, and Market Efficiency on an Electronic Futures Market , 2004, Manag. Sci..

[3]  Winston C. Yang,et al.  Parimutuel betting markets as information aggregation devices: experimental results , 2003 .

[4]  F. Hayek.  The economic nature of the firm: The use of knowledge in society , 1945 .

[5]  R. Roll.  Orange Juice and Weather , 1984 .

[6]  R. Hanson,et al.  Information aggregation and manipulation in an experimental market , 2006 .

[7]  Ilias P. Tatsiopoulos,et al.  PREDICTION MARKETS: AN EXTENDED LITERATURE REVIEW , 2007 .

[8]  Robin Hanson,et al.  Can Manipulators Mislead Market Observers , 2007 .

[9]  Thomas A. Rietz,et al.  Wishes, expectations and actions: a survey on price formation in election stock markets , 1999 .

[10]  C. Plott,et al.  Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets , 1988 .

[11]  V. Smith.  Economics in the Laboratory , 1994 .

[12]  Jan Marco Leimeister,et al.  The Effects of Prediction Market Design and Price Elasticity on Trading Performance of Users: An Experimental Analysis , 2012, ArXiv.

[13]  Thomas A. Rietz,et al.  Information Systems Frontiers 5:1, 79–93, 2003 C ○ 2003 Kluwer Academic Publishers. Manufactured in The Netherlands. Prediction Markets as Decision Support Systems , 2022 .

[14]  Paul C. Tetlock,et al.  The Promise of Prediction Markets , 2008, Science.

[15]  Koleman Strumpf,et al.  Historical presidential betting markets , 2004 .

[16]  David Porter,et al.  Experimental Evidence on the Properties of the California’s Cap and Trade Price Containment Reserve , 2012 .

[17]  Ben Jacobsen,et al.  (In)accuracy of a European political stockmarket : The influence of common value structures , 2000 .

[18]  Michael Vitale,et al.  The Wisdom of Crowds , 2015, Cell.

[19]  J. Muth.  Rational Expectations and the Theory of Price Movements , 1961 .

[20]  Lian Jian,et al.  Aggregation and manipulation in prediction markets: effects of trading mechanism and information distribution , 2010, EC '10.

[21]  J. Wolfers,et al.  Prediction Markets , 2003 .

[22]  Bryan R. Routledge,et al.  Prediction Markets: Alternative Mechanisms for Complex Environments with Few Traders , 2010, Manag. Sci..

[23]  Daniel Houser,et al.  High Stakes Behavior with Low Payoffs: Inducing Preferences with Holt-Laury Gambles , 2009 .

[24]  Robin Hanson,et al.  Can Manipulators Mislead Prediction Market Observers , 2008 .

[25]  Roman M. Sheremeta,et al.  You Can’t Put Old Wine in New Bottles: The Effect of Newcomers on Coordination in Groups , 2013, PloS one.

[26]  Lian Jian,et al.  Aggregation and Manipulation in Prediction Markets: Effects of Trading Mechanism and Information Distribution , 2012, Manag. Sci..

[27]  Charles R. Plott,et al.  Information Aggregation Mechanisms: Concept, Design and Implementation for a Sales Forecasting Problem , 2002 .

[28]  Roman M. Sheremeta,et al.  Restoring Damaged Trust with Promises, Atonement and Apology , 2011 .

[29]  C. Noussair,et al.  Futures Markets and Bubble Formation in Experimental Asset Markets , 2006 .

[30]  David Porter,et al.  Affecting Policy by Manipulating Prediction Markets: Experimental Evidence , 2013 .

[31]  Colin Camerer,et al.  Information Mirages in Experimental Asset Markets , 1993 .

[32]  Andrew Leigh,et al.  Three Tools for Forecasting Federal Elections: Lessons from 2001 , 2001 .

[33]  F. Nelson,et al.  Use of prediction markets to forecast infectious disease activity. , 2007, Clinical infectious diseases : an official publication of the Infectious Diseases Society of America.

[34]  Colin Camerer.  Do Biases in Probability Judgment Matter in Markets? Experimental Evidence , 1987 .

[35]  Gregor Brüggelambert,et al.  Information and efficiency in political stock markets: using computerized markets to predict election results , 2004 .

[36]  Penélope Hernández,et al.  Strategic behavior in Schelling dynamics: A new result and experimental evidence , 2011 .

[37]  Roman M. Sheremeta,et al.  Side-Payments and the Costs of Conflict , 2012 .

[38]  Andreas Graefe,et al.  Are Prediction Markets More Accurate than Simple Surveys , 2010 .

[39]  Russell J. Lundholm,et al.  Information Aggregation in an Experimental Market. , 1990 .

[40]  Teck-Hua Ho,et al.  Introduction to the Special Issue on Behavioral Economics and Finance , 2012, Manag. Sci..

[41]  Justin Wolfers,et al.  Using Prediction Markets to Track Information Flows: Evidence from Google , 2009, AMMA.

[42]  David M. Pennock,et al.  The Real Power of Artificial Markets , 2001, Science.

[43]  Thomas A. Turk,et al.  Too Many Cooks Spoil the Broth: How the tragedy of the anticommons emerges in organizations , 2012 .

[44]  Janine Hansen,et al.  Manipulation in political stock markets – preconditions and evidence , 2004 .

[45]  Robert Reig,et al.  FORECASTING ACCURACY: COMPARING PREDICTION MARKETS AND SURVEYS – AN EXPERIMENTAL STUDY , 2010 .

[46]  C. Manski.  Interpreting the Predictions of Prediction Markets , 2004 .

[47]  Roman M. Sheremeta,et al.  Facing Your Opponents: Social Identification and Information Feedback in Contests , 2014 .

[48]  V. Smith,et al.  Double Bubbles in Assets Markets With Multiple Generations , 2014 .

[49]  Matthias Meyer,et al.  Effectively combining experimental economics and multi-agent simulation: suggestions for a procedural integration with an example from prediction markets research , 2011, Computational and Mathematical Organization Theory.

[50]  Steven Gjerstad.  Risk Aversion, Beliefs, and Prediction Market Equilibrium , 2004 .

[51]  G. Harrison,et al.  The Informational Efficiency of Experimental Asset Markets , 1984, Journal of Political Economy.

[52]  J. Scott Armstrong,et al.  University of Pennsylvania Scholarlycommons Comparing Face-to-face Meetings, Nominal Groups, Delphi and Prediction Markets on an Estimation Task Comparing Face-to-face Meetings, Nominal Groups, Delphi and Prediction Markets on an Estimation Task Comparing Face-to-face Meetings, Nominal Groups, Delph , 2022 .

[53]  Roman M. Sheremeta.  Perfect-Substitutes, Best-Shot, and Weakest-Link Contests between Groups , 2009 .

[54]  Shengle Lin,et al.  Gradual Information Diffusion and Asset Price Momentum , 2010 .

[55]  C. Plott,et al.  Efficiency of Experimental Security Markets with Insider Information: An Application of Rational-Expectations Models , 1982, Journal of Political Economy.

[56]  Thomas Langer,et al.  Partition-Dependent Framing Effects in Lab and Field Prediction Markets , 2008 .

[57]  Paul C. Tetlock,et al.  Using Information Markets to Improve Public Decision Making , 2005 .

[58]  R. Hanson,et al.  An experimental test of combinatorial information markets , 2009 .

[59]  Roman M. Sheremeta.  Expenditures and Information Disclosure in Two-Stage Political Contests , 2010 .

[60]  Robert Forsythe,et al.  Anatomy of an Experimental Political Stock Market , 1992 .

[61]  J. Banks.  Price-conveyed Information versus Observed Insider Behavior: A Note on Rational Expectations Convergence , 1985, Journal of Political Economy.

[62]  Marc Vorsatz,et al.  Information aggregation in experimental asset markets in the presence of a manipulator , 2010 .

[63]  David M. Pennock,et al.  Designing Markets for Prediction , 2010, AI Mag..

[64]  D. MacKenzie,et al.  The use of knowledge about society , 2008 .

[65]  Alexandra Heath,et al.  Execution Methods in Foreign Exchange Markets , 2009 .