Abstract

http://ssrn.com/abstract=2322420
 
 

References (28)



 


 



Wishful Thinking, Manipulation, and the Wisdom of Crowds: Evidence from a Political Betting Market


David M. Rothschild


Microsoft Research - NYC

Rajiv Sethi


Columbia University, Barnard College - Department of Economics; Santa Fe Institute

June 9, 2015


Abstract:     
Political betting markets have become an increasingly important vehicle for the prediction of electoral outcomes, but the manner in which they aggregate beliefs and generate credible forecasts remains obscure. Furthermore, they are potentially vulnerable to manipulation by deep-pocketed partisans. We examine transaction-level data from Intrade's 2012 presidential winner market for the entire two-year period over which trading occurred, and identify a diverse set of trading strategies that constitute a rich market ecology. It is the complex and dynamic interaction of these strategies that generates the forecasts on which media attention is focused. We provide evidence of widespread wishful thinking among market participants as well a sustained and modestly successful attempt at manipulation by a well-funded trader. Despite these features the forecasting accuracy of the market was high, and we consider the reasons for this.

Number of Pages in PDF File: 27

Keywords: Prediction Markets, Wishful Thinking, Manipulation, Forecasting Elections

JEL Classification: G12, D83, D84


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Date posted: September 9, 2013 ; Last revised: June 10, 2015

Suggested Citation

Rothschild, David M. and Sethi, Rajiv, Wishful Thinking, Manipulation, and the Wisdom of Crowds: Evidence from a Political Betting Market (June 9, 2015). Available at SSRN: http://ssrn.com/abstract=2322420 or http://dx.doi.org/10.2139/ssrn.2322420

Contact Information

David M. Rothschild
Microsoft Research - NYC ( email )
641 6th Ave., 7th Floor
New York, NY 10011
United States
Rajiv Sethi (Contact Author)
Columbia University, Barnard College - Department of Economics ( email )
3009 Broadway
New York, NY 10027
United States
212-854-5140 (Phone)
212-854-8947 (Fax)
Santa Fe Institute
1399 Hyde Park Road
Santa Fe, NM 87501
United States
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