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Affecting Policy by Manipulating Prediction Markets: Experimental Evidence

  • Cary Deck

    ()

    (University of Arkansas and Economic Science Institute)

  • Shengle Lin

    (Economic Science Institute, Chapman University)

  • David Porter

    ()

    (Economic Science Institute, Chapman University)

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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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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  1. Jan Hansen & Carsten Schmidt & Martin Strobel, 2004. "Manipulation in political stock markets - preconditions and evidence," Natural Field Experiments 00265, The Field Experiments Website.
  2. Helena Veiga & Marc Vorsatz, 2010. "Information aggregation in experimental asset markets in the presence of a manipulator," Experimental Economics, Springer;Economic Science Association, vol. 13(4), pages 379-398, December.
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  9. Plott, Charles & Hung, Angela, 1998. "Information Cascades: Replication and an Extension to Majority Rule and Conformity Rewarding Institutions," Working Papers 1051, California Institute of Technology, Division of the Humanities and Social Sciences.
  10. Berg, Joyce & Forsythe, Robert & Nelson, Forrest & Rietz, Thomas, 2008. "Results from a Dozen Years of Election Futures Markets Research," Handbook of Experimental Economics Results, Elsevier.
  11. 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, vol. 6(1), pages 1-27, October.
  12. 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.
  13. Veiga Helena & Vorsatz Marc, 2006. "Price Manipulation in an Experimental Asset Market," Research Memorandum 024, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  14. Lee, Hyunok & Sumner, Daniel A. & Ahn, Byeong-il, 2006. "Consequences of further opening of the Korean dairy market," Food Policy, Elsevier, vol. 31(3), pages 238-248, June.
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