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A Manipulator Can Aid Prediction Market Accuracy

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Author Info

  • ROBIN HANSON
  • RYAN OPREA

Abstract

Prediction markets are low volume speculative markets whose prices offer informative forecasts on particular policy topics. Observers worry that traders may attempt to mislead decision makers by manipulating prices. We adapt a Kyle-style market microstructure model to this case, adding a manipulator with an additional quadratic preference regarding the price. In this model, when other traders are uncertain about the manipulator's target price, the mean target price has no effect on prices, and raising the variance of the target price can "increase" average price accuracy, by boosting the returns to informed trading and thereby incentives for traders to become informed. Copyright (c) The London School of Economics and Political Science 2008.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 76 (2009)
Issue (Month): 302 (04)
Pages: 304-314

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Handle: RePEc:bla:econom:v:76:y:2009:i:302:p:304-314

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Cited by:
  1. Helena Veiga & Marc Vorsatz, 2008. "Aggregation and Dissemination of Information in Experimental Asset Markets in the Presence of a Manipulator," Working Papers 2008-29, FEDEA.
  2. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2012. "Prediction Markets for Economic Forecasting," CESifo Working Paper Series 3884, CESifo Group Munich.
  3. Veiga, Helena & Vorsatz, Marc, 2009. "Price manipulation in an experimental asset market," European Economic Review, Elsevier, vol. 53(3), pages 327-342, April.
  4. Helena Veiga & Marc Vorsatz, 2010. "Information aggregation in experimental asset markets in the presence of a manipulator," Experimental Economics, Springer, vol. 13(4), pages 379-398, December.
  5. David Reinstein & Joon Song, 2014. "Listen to the Market, Hear the Best Policy Decision, but Don't Always Choose it," Economics Discussion Papers 748, University of Essex, Department of Economics.

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