A Prediction Market for Toxic Assets

We propose the development of a prediction market to provide a form of collective intelligence for forecasting prices for "toxic assets" to be transferred from Irish banks to the National Asset Management Agency. Such a market allows participants to assume a stake in a security whose value is tied to a future event. We propose that securities are created whose value hinges on the transfer amount paid for loans from the agency to a bank. In essence, bets are accepted on whether the price is higher or lower than a quoted figure. The prices of securities indicate expected transfer costs for toxic assets. Prediction markets offer a proven means of aggregating distributed knowledge pertaining to estimates of uncertain quantities and are robust to strategic manipulation. We propose that a prediction market runs in parallel to a pricing procedure for individual assets conducted by the government agency. We advocate an approach whereby prices are chosen as a convex combination of the...

• Type: Journal
• Year: 2009
• Where: AICS
• Authors: Alan Holland
• Keywords: AICS 2009, Artificial Intelligence, National Asset Management Agency, Prediction Market, Toxic Assets