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Can Manipulators Mislead Prediction Market Observers?

Author

Listed:
  • RYan Oprea

    () (University Of California, Santa Cruz)

  • David Porter

    () (Economic Science Institute, CHapman University)

  • Chris Hibbert

    ()

  • Robin Hanson

    () (George Mason University)

  • Dorina Tila

    () (George Mason University)

Abstract

We study experimental markets where privately informed traders exchange simple assets, and where uninformed third parties are asked to forecast the values of these assets, guided only by market prices. Although prices only partially aggregate information, they significantly improve the forecasts of third parties. In a second treatment, a portion of traders are given preferences over the forecasts made by observers. Although we find evidence that these traders attempt to manipulate prices in order to influence the beliefs of observers, we find no evidence that observers make less accurate forecasts as a result.

Suggested Citation

  • RYan Oprea & David Porter & Chris Hibbert & Robin Hanson & Dorina Tila, 2008. "Can Manipulators Mislead Prediction Market Observers?," Working Papers 08-01, Chapman University, Economic Science Institute.
  • Handle: RePEc:chu:wpaper:08-01
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    File URL: http://www.chapman.edu/ESI/wp/CanManipulatorsMisleadMarketObservers.pdf
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    References listed on IDEAS

    as
    1. Jan Hansen & Carsten Schmidt & Martin Strobel, 2004. "Manipulation in political stock markets - preconditions and evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 11(7), pages 459-463.
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    3. Forsythe, Robert & Forrest Nelson & George R. Neumann & Jack Wright, 1992. "Anatomy of an Experimental Political Stock Market," American Economic Review, American Economic Association, vol. 82(5), pages 1142-1161, December.
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    6. Plott, Charles R & Sunder, Shyam, 1988. "Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets," Econometrica, Econometric Society, vol. 56(5), pages 1085-1118, September.
    7. Justin Wolfers & Eric Zitzewitz, 2006. "Interpreting prediction market prices as probabilities," Working Paper Series 2006-11, Federal Reserve Bank of San Francisco.
    8. Forsythe, Robert & Lundholm, Russell, 1990. "Information Aggregation in an Experimental Market," Econometrica, Econometric Society, vol. 58(2), pages 309-347, March.
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    10. Steven Gjerstad, 2004. "Risk Aversion, Beliefs, and Prediction Market Equilibrium," Microeconomics 0411002, EconWPA.
    11. 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.
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    14. Chakraborty, Archishman & Yilmaz, Bilge, 2004. "Manipulation in market order models," Journal of Financial Markets, Elsevier, vol. 7(2), pages 187-206, February.
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    Cited by:

    1. Kyle C. Meng, 2016. "Using a Free Permit Rule to Forecast the Marginal Abatement Cost of Proposed Climate Policy," NBER Working Papers 22255, National Bureau of Economic Research, Inc.
    2. Douglas Davis & Edward Simpson Prescott & Oleg Korenok, 2011. "An experimental analysis of contingent capital triggering mechanisms," Working Paper 11-01, Federal Reserve Bank of Richmond.
    3. Legge, Stefan & Schmid, Lukas, 2016. "Media attention and betting markets," European Economic Review, Elsevier, vol. 87(C), pages 304-333.

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