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Manipulation and (mis)trust in prediction markets

Author

Listed:
  • Choo, Lawrence
  • Kaplan, Todd R.
  • Zultan, Ro'i

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.

Suggested Citation

  • Choo, Lawrence & Kaplan, Todd R. & Zultan, Ro'i, 2019. "Manipulation and (mis)trust in prediction markets," FAU Discussion Papers in Economics 12/2019, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    • Handle: RePEc:zbw:iwqwdp:122019
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    2. Liu, Jie & Zhang, Jingru & Chen, Zhenshan, 2025. "The effect of stock market manipulation on investor behavioral bias," Journal of Behavioral and Experimental Finance, Elsevier, vol. 47(C).
    3. Itzhak Rasooly & Roberto Rozzi, 2025. "How Manipulable Are Prediction Markets ?," Sciences Po Economics Discussion Papers hal-05022889, HAL.
    4. Mark S Roulston & Kim Kaivanto, 2024. "Joint-outcome prediction markets for climate risks," PLOS ONE, Public Library of Science, vol. 19(8), pages 1-14, August.
    5. Mantovani, Marco & Filippin, Antonio, 2026. "When do prediction markets return average beliefs? Experimental evidence," Games and Economic Behavior, Elsevier, vol. 156(C), pages 135-148.
    6. Chen, Yangfa & Jiang, Ji & Liu, Jie & Liu, Xiao & Wu, Weili, 2025. "Registration system reform, information environment, and market manipulation," Journal of Corporate Finance, Elsevier, vol. 93(C).

    More about this item

    Keywords

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    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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