Prediction Markets: Alternative Mechanisms for Complex Environments with Few Traders
AbstractDouble auction prediction markets have proven successful in large-scale applications such as elections and sporting events. Consequently, several large corporations have adopted these markets for smaller-scale internal applications where information may be complex and the number of traders is small. Using laboratory experiments, we test the performance of the double auction in complex environments with few traders and compare it to three alternative mechanisms. When information is complex we find that an iterated poll (or Delphi method) outperforms the double auction mechanism. We present five behavioral observations that may explain why the poll performs better in these settings.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 56 (2010)
Issue (Month): 11 (November)
information aggregation; prediction markets; mechanism design;
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- Yusufcan Masatlioglu & Sarah Taylor & Neslihan Uler, 2012. "Behavioral mechanism design: evidence from the modified first-price auctions," Review of Economic Design, Springer, vol. 16(2), pages 159-173, September.
- Cary Deck & David Porter, 2013. "Prediction Markets in the Laboratory," Working Papers 13-05, Chapman University, Economic Science Institute.
- Abraham Othman & Tuomas Sandholm, 2013. "The Gates Hillman prediction market," Review of Economic Design, Springer, vol. 17(2), pages 95-128, June.
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