Aggregation and manipulation in prediction markets: effects of trading mechanism and information distribution

We conduct laboratory experiments on variants of market scoring rule prediction markets, under different information distribution patterns, in order to evaluate the efficiency and speed of information aggregation, as well as test recent theoretical results on manipulative behavior by traders. We find that markets structured to have a fixed sequence of trades exhibit greater accuracy of information aggregation than the typical form that has unstructured trade. Prior theoretical predictions of differing strategic behavior under complementary information distributions and substitute information distributions are confirmed when the trading order is structured, but not in markets with an unstructured trading order. In the case of the markets with a structured order, we find that the information aggregation is consequently slower when information is complementary, as traders more frequently engage in bluffing and delaying strategies. In comparing two commonly used mechanisms, we find...

• Type: Journal
• Year: 2010
• Where: SIGECOM
• Authors: Lian Jian, Rahul Sami
• Keywords: ECommerce, Information Aggregation, Information Distributions, Market, SIGECOM 2010