IDEAS home Printed from https://ideas.repec.org/a/spr/infosf/v19y2017i3d10.1007_s10796-015-9617-7.html
   My bibliography  Save this article

The effect of malicious manipulations on prediction market accuracy

Author

Listed:
  • Patrick Buckley

    (University of Limerick)

  • Fergal O’Brien

    (University of Limerick)

Abstract

Prediction markets are a form of group decision support system which uses a market mechanism to elicit and aggregate information from large numbers of individuals. The literature recognises their potential as decision support tools, but also notes several issues of concern regarding their utility in an organisational setting. One critical concern is the possibility that prediction markets may be subject to malicious manipulation. This paper presents a field experiment which examines the effect of such manipulations on prediction market performance. We divide a sample of 72 contracts into a control group and an experimental group. Contracts in the experimental group are manipulated by a trader with a malicious motivation. The study demonstrates that manipulations do have an effect on prediction market accuracy, but that these effects are rapidly ameliorated by rational traders and shows that fear of malicious manipulation should not preclude the use of prediction markets as organisational decision making tools.

Suggested Citation

  • Patrick Buckley & Fergal O’Brien, 2017. "The effect of malicious manipulations on prediction market accuracy," Information Systems Frontiers, Springer, vol. 19(3), pages 611-623, June.
    • Handle: RePEc:spr:infosf:v:19:y:2017:i:3:d:10.1007_s10796-015-9617-7
    DOI: 10.1007/s10796-015-9617-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10796-015-9617-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10796-015-9617-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jacobsen, Ben & Potters, Jan & Schram, Arthur & van Winden, Frans & Wit, Jorgen, 2000. "(In)accuracy of a European political stock market: The influence of common value structures," European Economic Review, Elsevier, vol. 44(2), pages 205-230, February.
    2. Wolfers, Justin & Zitzewitz, Eric, 2006. "Five Open Questions About Prediction Markets," CEPR Discussion Papers 5562, C.E.P.R. Discussion Papers.
    3. Paul W. Rhode & Koleman Strumpf, 2008. "Historical Political Futures Markets: An International Perspective," NBER Working Papers 14377, National Bureau of Economic Research, Inc.
    4. Cary Deck & David Porter, 2013. "Prediction Markets In The Laboratory," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 589-603, July.
    5. Kay-Yut Chen & Leslie R. Fine & Bernardo A. Huberman, 2003. "Predicting the Future," Information Systems Frontiers, Springer, vol. 5(1), pages 47-61, January.
    6. Robert W. Hahn & Paul Tetlock, 2006. "Information Markets: A New Way of Making Decisions," Books, American Enterprise Institute, number 51409, September.
    7. Deck, Cary & Lin, Shengle & Porter, David, 2013. "Affecting policy by manipulating prediction markets: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 48-62.
    8. David Rajakovich & Vladimir Vladimirov, 2009. "Prediction Markets as a Medical Forecasting Tool: Demand for Hospital Services," Journal of Prediction Markets, University of Buckingham Press, vol. 3(2), pages 78-106, August.
    9. Martin Spann & Bernd Skiera, 2003. "Internet-Based Virtual Stock Markets for Business Forecasting," Management Science, INFORMS, vol. 49(10), pages 1310-1326, October.
    10. Thomas S. Gruca & Joyce E. Berg, 2007. "Public Information Bias and Prediction Market Accuracy," Journal of Prediction Markets, University of Buckingham Press, vol. 1(3), pages 219-231, December.
    11. Henry Berg & Todd A. Proebsting, 2009. "Hanson's Automated Market Maker," Journal of Prediction Markets, University of Buckingham Press, vol. 3(1), pages 45-59, April.
    12. Gerrit Kamp & Peter Koen, 2009. "Improving the Idea Screening Process within Organizations using Prediction Markets: A Theoretical Perspective," Journal of Prediction Markets, University of Buckingham Press, vol. 3(2), pages 39-64, August.
    13. Hanson, Robin & Oprea, Ryan & Porter, David, 2006. "Information aggregation and manipulation in an experimental market," Journal of Economic Behavior & Organization, Elsevier, vol. 60(4), pages 449-459, August.
    14. Martin Waitz & Andreas Mild, 2009. "Improving Forecasting Accuracy in Corporate Prediction Markets - A Case Study in the Austrian Mobile Communication Industry," Journal of Prediction Markets, University of Buckingham Press, vol. 3(3), pages 49-62, December.
    15. Justin Wolfers & Eric Zitzewitz, 2004. "Prediction Markets," Journal of Economic Perspectives, American Economic Association, vol. 18(2), pages 107-126, Spring.
    16. Robin Hanson, 2007. "The Policy Analysis Market (A Thwarted Experiment in the Use of Prediction Markets for Public Policy)," Innovations: Technology, Governance, Globalization, MIT Press, vol. 2(3), pages 73-88, July.
    17. Joyce E. Berg & Thomas A. Rietz, 2003. "Prediction Markets as Decision Support Systems," Information Systems Frontiers, Springer, vol. 5(1), pages 79-93, January.
    18. Burton G. Malkiel, 2005. "Reflections on the Efficient Market Hypothesis: 30 Years Later," The Financial Review, Eastern Finance Association, vol. 40(1), pages 1-9, February.
    19. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 59-82, Winter.
    20. Caitlin Hall, 2010. "Prediction Markets: Issues and Applications," Journal of Prediction Markets, University of Buckingham Press, vol. 4(1), pages 27-58, May.
    21. Thomas S. Gruca & Joyce E. Berg & Michael Cipriano, 2008. "Incentive and Accuracy Issues in Movie Prediction Markets," Journal of Prediction Markets, University of Buckingham Press, vol. 2(1), pages 29-43, May.
    22. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
    23. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
    24. Robin Hanson, 2007. "Logarithmic Market Scoring Rules for Modular Combinatorial Information Aggregation," Journal of Prediction Markets, University of Buckingham Press, vol. 1(1), pages 3-15, February.
    25. repec:pri:cepsud:91malkiel is not listed on IDEAS
    26. Kenneth Oliven & Thomas A. Rietz, 2004. "Suckers Are Born but Markets Are Made: Individual Rationality, Arbitrage, and Market Efficiency on an Electronic Futures Market," Management Science, INFORMS, vol. 50(3), pages 336-351, March.
    27. Christina Ann LaComb & Janet Arlie Barnett & Qimei Pan, 2007. "The imagination market," Information Systems Frontiers, Springer, vol. 9(2), pages 245-256, July.
    28. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    29. Georgios Tziralis & Ilias Tatsiopoulos, 2007. "Prediction Markets: An Extended Literature Review," Journal of Prediction Markets, University of Buckingham Press, vol. 1(1), pages 75-91, February.
    30. Andreas Graefe & Christof Weinhardt, 2008. "Long-Term Forecasting with Prediction Markets - A Field Experiment on Applicability and Expert Confidence," Journal of Prediction Markets, University of Buckingham Press, vol. 2(2), pages 71-91, September.
    31. Stefan Luckner & Christof Weinhardt, 2007. "How to Pay Traders in Information Markets: Results from a Field Experiment," Journal of Prediction Markets, University of Buckingham Press, vol. 1(2), pages 147-156, July.
    32. Lian Jian & Rahul Sami, 2012. "Aggregation and Manipulation in Prediction Markets: Effects of Trading Mechanism and Information Distribution," Management Science, INFORMS, vol. 58(1), pages 123-140, January.
    33. Stefan Luckner & Christof Weinhardt, 2007. "How to pay traders in information markets? Results from a field experiment," Artefactual Field Experiments 00107, The Field Experiments Website.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Patrick Buckley & Fergal O’Brien, 0. "The effect of malicious manipulations on prediction market accuracy," Information Systems Frontiers, Springer, vol. 0, pages 1-13.
    2. Buckley, Patrick, 2016. "Harnessing the wisdom of crowds: Decision spaces for prediction markets," Business Horizons, Elsevier, vol. 59(1), pages 85-94.
    3. Riekhof, Hans-Christian & Riekhof, Marie-Catherine & Brinkhoff, Stefan, 2012. "Predictive Markets: Ein vielversprechender Weg zur Verbesserung der Prognosequalität im Unternehmen?," PFH Forschungspapiere/Research Papers 2012/07, PFH Private University of Applied Sciences, Göttingen.
    4. Lionel Page & Christoph Siemroth, 2021. "How Much Information Is Incorporated into Financial Asset Prices? Experimental Evidence," Review of Financial Studies, Society for Financial Studies, vol. 34(9), pages 4412-4449.
    5. Edoardo Gaffeo, 2013. "Using information markets in grantmaking. An assessment of the issues involved and an application to Italian banking foundations," DEM Discussion Papers 2013/08, Department of Economics and Management.
    6. Ivo Blohm & Christoph Riedl & Johann Fuller & Orhan Koroglu & 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.
    7. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2013. "Prediction Markets for Economic Forecasting," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 657-687, Elsevier.
    8. Martin Spann & Bernd Skiera, 2009. "Sports forecasting: a comparison of the forecast accuracy of prediction markets, betting odds and tipsters," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(1), pages 55-72.
    9. Brice Corgnet & Cary Deck & Mark DeSantis & David Porter, 2022. "Forecasting Skills in Experimental Markets: Illusion or Reality?," Management Science, INFORMS, vol. 68(7), pages 5216-5232, July.
    10. Ivo Blohm & Christoph Riedl & Johann Füller & Jan Marco Leimeister, 2016. "Rate or Trade? Identifying Winning Ideas in Open Idea Sourcing," Information Systems Research, INFORMS, vol. 27(1), pages 27-48, March.
    11. Ahrash Dianat & Christoph Siemroth, 2021. "Improving decisions with market information: an experiment on corporate prediction markets," Experimental Economics, Springer;Economic Science Association, vol. 24(1), pages 143-176, March.
    12. Karimi, Majid & Zaerpour, Nima, 2022. "Put your money where your forecast is: Supply chain collaborative forecasting with cost-function-based prediction markets," European Journal of Operational Research, Elsevier, vol. 300(3), pages 1035-1049.
    13. Brice Corgnet & Cary Deck & Mark DeSantis & Kyle Hampton & Erik O. Kimbrough, 2023. "When Do Security Markets Aggregate Dispersed Information?," Management Science, INFORMS, vol. 69(6), pages 3697-3729, June.
    14. Ledyard, John & Hanson, Robin & Ishikida, Takashi, 2009. "An experimental test of combinatorial information markets," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 182-189, February.
    15. Kin-Boon Tang & Shao-Jye Wong & Shih-Kuei Lin & Szu-Lang Liao, 2020. "Excess volatility and market efficiency in government bond markets: the ASEAN-5 context," Journal of Asset Management, Palgrave Macmillan, vol. 21(2), pages 154-165, March.
    16. Cao, K.H. & Qi, H.S. & Tsai, C.H. & Woo, C.K. & Zarnikau, J., 2021. "Energy trading efficiency in the US Midcontinent electricity markets," Applied Energy, Elsevier, vol. 302(C).
    17. 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.
    18. Erik Snowberg & Justin Wolfers & Eric Zitzewitz, 2011. "How Prediction Markets can Save Event Studies," CAMA Working Papers 2011-07, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    19. Pankaj Pandey & Einar Snekkenes, 2016. "Using Financial Instruments to Transfer the Information Security Risks," Future Internet, MDPI, vol. 8(2), pages 1-62, May.
    20. Ho Cheung Brian Lee & Jan Stallaert & Ming Fan, 2020. "Anomalies in Probability Estimates for Event Forecasting on Prediction Markets," Production and Operations Management, Production and Operations Management Society, vol. 29(9), pages 2077-2095, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:infosf:v:19:y:2017:i:3:d:10.1007_s10796-015-9617-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.