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Affecting Policy by Manipulating Prediction Markets: Experimental Evidence

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  • Cary Deck

    ()
    (University of Arkansas and Economic Science Institute)

  • Shengle Lin

    (Economic Science Institute, Chapman University)

  • David Porter

    ()
    (Economic Science Institute, Chapman University)

Abstract

Documented results indicate prediction markets effectively aggregate information and form accurate predictions. This has led to a proliferation of markets predicting everything from the results of elections to a company’s sales to movie box office receipts. Recent research suggests prediction markets are robust to manipulation attacks and resulting market outcomes improve forecast accuracy. However, we present evidence from the lab indicating that well funded, single minded manipulators can in fact destroy a prediction market’s ability to aggregate information. Our results clearly indicate that the usefulness of prediction markets as inputs to decision making may be limited.

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File URL: http://www.chapman.edu/ESI/wp/Porter_AffectingPolicyManipulatingPredictionMarkets.pdf
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Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 10-15.

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Length: 34 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:chu:wpaper:10-15

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Keywords: Information Aggregation; Prediction Markets; Manipulation;

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  1. Paul Rhode & Koleman Strumpf, 2006. "Manipulating political stock markets: A field experiment and a century of observational data," Natural Field Experiments 00325, The Field Experiments Website.
  2. Lee, Hyunok & Sumner, Daniel A. & Ahn, Byeong-il, 2006. "Consequences of further opening of the Korean dairy market," Food Policy, Elsevier, Elsevier, vol. 31(3), pages 238-248, June.
  3. Hanson, Robin & Oprea, Ryan & Porter, David, 2006. "Information aggregation and manipulation in an experimental market," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 60(4), pages 449-459, August.
  4. Sumner Scott, 2006. "Let a Thousand Models Bloom: The Advantages of Making the FOMC a Truly 'Open Market'," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 6(1), pages 1-27, October.
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