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How to Pay Traders in Information Markets: Results from a Field Experiment

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  • Stefan Luckner

    (University of Karlsruhe)

  • Christof Weinhardt

    (University of Karlsruhe)

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    Abstract

    The results of recent studies on prediction markets are encouraging. Prior experience demonstrates that markets with different incentive schemes predicted uncertain future events remarkably accurately. In this paper, we study the impact of different monetary incentives on prediction accuracy in a field experiment. In order to do so, we compare three groups of traders, corresponding to three treatments with different payment schemes, in a prediction market for the FIFA World Cup 2006. Somewhat surprisingly, our results show that performance-related payment schemes do not necessarily increase the prediction accuracy. Due to the risk aversion of traders the competitive environment in a rank-order tournament leads to the best results in terms of prediction accuracy.

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    Bibliographic Info

    Article provided by University of Buckingham Press in its journal Journal of Prediction Markets.

    Volume (Year): 1 (2007)
    Issue (Month): 2 (July)
    Pages: 147-156

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    Handle: RePEc:buc:jpredm:v:1:y:2007:i:2:p:147-156

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    Web: http://www.predictionmarketjournal.com/index_files/Page418.htm

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    Cited by:
    1. Renaud Coulomb & Marc Sangnier, 2012. "Impacts of Political Majorities on French Firms: Electoral Promises or Friendship Connections?," PSE Working Papers halshs-00671405, HAL.
    2. Coulomb, Renaud & Sangnier, Marc, 2014. "The impact of political majorities on firm value: Do electoral promises or friendship connections matter?," Journal of Public Economics, Elsevier, vol. 115(C), pages 158-170.
    3. Ivo Blohm & Christoph Riedl & Johann F\"uller & Orhan K\"oroglu & Jan Marco Leimeister & Helmut Krcmar, 2012. "The Effects of Prediction Market Design and Price Elasticity on Trading Performance of Users: An Experimental Analysis," Papers 1204.3457, arXiv.org.
    4. Palan, Stefan, 2010. "Digital options and efficiency in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 75(3), pages 506-522, September.

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