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Manipulation And (Mis)Trust In Prediction Markets

Author

Listed:
  • Lawrence Choo

    (Nuremberg Germany)

  • Todd R. Kaplan

    (Haifa)

  • Ro’i Zultan

    (BGU)

Abstract

Markets are increasingly used as information aggregation mechanisms to predict future events. If policy makers make use markets, parties may attempt to manipulate the market in order to influence decisions. We experimentally find that policymakers could still benefit from following information contained in market prices. Nonetheless, manipulation is detrimental. First, manipulators affect market prices, making them less informative. Second, when there are manipulators, policy makers often ignore - or even act against - the information revealed in market prices. Finally, mere suspicion of manipulation erodes trust in the market, leading to the implementation of suboptimal policies - even without actual manipulation.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Lawrence Choo & Todd R. Kaplan & Ro’i Zultan, 2020. "Manipulation And (Mis)Trust In Prediction Markets," Working Papers 2012, Ben-Gurion University of the Negev, Department of Economics.
    • Handle: RePEc:bgu:wpaper:2012
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    File URL: http://in.bgu.ac.il/en/humsos/Econ/Workingpapers/2012.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    prediction markets; policy; experiment;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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