The Effects of Prediction Market Design and Price Elasticity on Trading Performance of Users: An Experimental Analysis
We employ a 2x3 factorial experiment to study two central factors in the design of prediction markets (PMs) for idea evaluation: the overall design of the PM, and the elasticity of market prices set by a market maker. The results show that 'multi-market designs' on which each contract is traded on a separate PM lead to significantly higher trading performance than 'single-markets' that handle all contracts one on PM. Price elasticity has no direct effect on trading performance, but a significant interaction effect with market design implies that the performance difference between the market designs is highest in settings of moderate price elasticity. We contribute to the emerging research stream of PM design through an unprecedented experiment which compares current market designs.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Snowberg, Erik & Wolfers, Justin, 2010.
"Explaining the Favorite-Longshot Bias: Is it Risk-Love or Misperceptions?,"
CEPR Discussion Papers
7801, C.E.P.R. Discussion Papers.
- Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Long Shot Bias: Is it Risk-Love or Misperceptions?," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 723-746, 08.
- Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Longshot Bias: Is it Risk-Love or Misperceptions?," CESifo Working Paper Series 3029, CESifo Group Munich.
- Snowberg, Erik & Wolfers, Justin, 2010. "Explaining the Favorite-Longshot Bias: Is it Risk-Love or Misperceptions?," IZA Discussion Papers 4884, Institute for the Study of Labor (IZA).
- Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Longshot Bias: Is it Risk-Love or Misperceptions?," NBER Working Papers 15923, National Bureau of Economic Research, Inc.
- Justin Wolfers & Eric Zitzewitz, 2004.
NBER Working Papers
10504, National Bureau of Economic Research, Inc.
- Beardsley, George & Mansfield, Edwin, 1978. "A Note on the Accuracy of Industrial Forecasts of the Profitability of New Products and Processes," The Journal of Business, University of Chicago Press, vol. 51(1), pages 127-135, January.
- Armstrong, J. Scott & Collopy, Fred, 1992. "Error measures for generalizing about forecasting methods: Empirical comparisons," International Journal of Forecasting, Elsevier, vol. 8(1), pages 69-80, June.
- Franke, Nikolaus & Shah, Sonali, 2003. "How communities support innovative activities: an exploration of assistance and sharing among end-users," Research Policy, Elsevier, vol. 32(1), pages 157-178, January.
- repec:reg:rpubli:259 is not listed on IDEAS
- 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.
- 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.
- 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.
- 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.
- Christian Slamka & Wolfgang Jank & Bernd Skiera, 2012. "Second‐Generation Prediction Markets for Information Aggregation: A Comparison of Payoff Mechanisms," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 31(6), pages 469-489, 09.
- Karan Girotra & Christian Terwiesch & Karl T. Ulrich, 2010. "Idea Generation and the Quality of the Best Idea," Management Science, INFORMS, vol. 56(4), pages 591-605, April.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1204.3457. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.