The Effects of Prediction Market Design and Price Elasticity on Trading Performance of Users: An Experimental Analysis

Collective Intelligence 2012 Proceedings, Cambridge, MA, USA

9 Pages Posted: 6 Aug 2014

See all articles by Ivo Blohm

Ivo Blohm

University of St. Gallen

Christoph Riedl

Northeastern University - D’Amore-McKim School of Business; Northeastern University - College of Computer and Information Science; Harvard University - Institute for Quantitative Social Science

Johann Füller

University of Innsbruck - School of Management

Orhan Köroglu

Technische Universität München (TUM) - Information Systems

J. M. Leimeister

University of St. Gallen; University of Kassel - Information Systems

Helmut Krcmar

Technische Universität München (TUM)

Date Written: 2012

Abstract

We employ a 2x3 factorial experiment to study two central factors in the design of prediction markets (PMs) for idea evaluation: the overall design of the PM, and the elasticity of market prices set by a market maker. The results show that ‘multi-market designs’ on which each contract is traded on a separate PM lead to significantly higher trading performance than ‘single-markets’ that handle all contracts one on PM. Price elasticity has no direct effect on trading performance, but a significant interaction effect with market design implies that the performance difference between the market designs is highest in settings of moderate price elasticity. We contribute to the emerging research stream of PM design through an unprecedented experiment which compares current market designs.

Keywords: prediction market, market design, market making, price elasticity, idea evaluation

Suggested Citation

Blohm, Ivo and Riedl, Christoph and Füller, Johann and Köroglu, Orhan and Leimeister, Jan Marco and Krcmar, Helmut, The Effects of Prediction Market Design and Price Elasticity on Trading Performance of Users: An Experimental Analysis (2012). Collective Intelligence 2012 Proceedings, Cambridge, MA, USA. Available at SSRN: https://ssrn.com/abstract=2475888

Ivo Blohm

University of St. Gallen ( email )

Müller-Friedberg-Strass 8
St. Gallen, 9000
Switzerland

Christoph Riedl

Northeastern University - D’Amore-McKim School of Business ( email )

360 Huntington Ave.
Boston, MA 02115
United States

HOME PAGE: http://www.christophriedl.net

Northeastern University - College of Computer and Information Science ( email )

360 Huntington Avenue
Boston, MA 02115
United States

Harvard University - Institute for Quantitative Social Science ( email )

1737 Cambridge St.
Cambridge, MA 02138
United States

HOME PAGE: http://christophriedl.net

Johann Füller

University of Innsbruck - School of Management ( email )

Universitaetsstrasse 15
Innsbruck, 6020
Austria
+43 512 507 7201 (Phone)
+43 512 507 2842 (Fax)

Orhan Köroglu

Technische Universität München (TUM) - Information Systems ( email )

Boltzmannstr. 3
Garching b. Munich, 85748
Germany

Jan Marco Leimeister (Contact Author)

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

University of Kassel - Information Systems ( email )

Nora-Platiel 4
Kassel, 34127
Germany

Helmut Krcmar

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

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