A Manipulator Can Aid Prediction Market Accuracy

11 Pages Posted: 27 Apr 2009

See all articles by Robin Hanson

Robin Hanson

George Mason University; Oxford University - Future of Humanity Institute

Ryan Oprea

University of California, Santa Cruz

Abstract

Prediction markets are low volume speculative markets whose prices offer informative forecasts on particular policy topics. Observers worry that traders may attempt to mislead decision makers by manipulating prices. We adapt a Kyle-style market microstructure model to this case, adding a manipulator with an additional quadratic preference regarding the price. In this model, when other traders are uncertain about the manipulator's target price, the mean target price has no effect on prices, and raising the variance of the target price can increase average price accuracy, by boosting the returns to informed trading and thereby incentives for traders to become informed.

Suggested Citation

Hanson, Robin and Oprea, Ryan, A Manipulator Can Aid Prediction Market Accuracy. Economica, Vol. 76, Issue 302, pp. 304-314, April 2009. Available at SSRN: https://ssrn.com/abstract=1375982 or http://dx.doi.org/10.1111/j.1468-0335.2008.00734.x

Robin Hanson

George Mason University ( email )

MS 1D3, Carow Hall
4400 University Dr.
Fairfax, VA 22030-4444
United States
703-993-2326 (Phone)
703-993-2323 (Fax)

HOME PAGE: http://hanson.gmu.edu

Oxford University - Future of Humanity Institute ( email )

Suite 8, Littlegate House
16/17 St Ebbe's Street
Oxford, OX1 1PT
United Kingdom

Ryan Oprea

University of California, Santa Cruz ( email )

1156 High St
Santa Cruz, CA 95064
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
1
Abstract Views
617
PlumX Metrics