Zero-intelligence agents in prediction markets

We construct a novel agent-based model of prediction markets in which putative human qualities like learning, reasoning, and profit-seeking are absent. We show that the prices which emerge from a market populated by a class of distinctly inhuman agents, Zero-Intelligence agents with diffuse beliefs, replicate the findings of empirical market studies. We use this result to argue against the prevailing descriptive theories of price formation in prediction markets, which have stressed the role of expert, rational participants. Categories and Subject Descriptors J.4 [Social and Behavioral Sciences ]: Economics General Terms Economics, Theory Keywords Zero-Intelligence, Prediction Markets, Marginal Trader Hypothesis, Simulation

• Type: Conference
• Year: 2008
• Where: ATAL
• Authors: Abraham Othman
• Keywords: ATAL 2008, Empirical Market Studies, Intelligent Agents, Prediction Markets, Putative Human Qualities