Designing Information Markets for Decision Making

48 Pages Posted: 8 Dec 2005

See all articles by Paul C. Tetlock

Paul C. Tetlock

Columbia Business School - Finance

Robert W. Hahn

University of Oxford, Smith School; Georgetown University

Donald D. Lien

University of Texas at San Antonio - College of Business - Department of Economics

Date Written: December 2005

Abstract

People often make important decisions based on information elicited from experts with uncertain preferences. We provide a theoretical rationale for the use of information markets in decision making tasks. Specifically, we show that markets for claims on decision-relevant variables can be efficient incentive schemes for eliciting information. Our model shows decision makers will subsidize liquidity in illiquid decision markets to gather valuable information. Our model also shows that the mere act of linking the decision to the market price will typically enhance liquidity in the market. Overall, our results highlight the potential for using information markets in diverse decision making tasks.

Keywords: information markets, decision markets

JEL Classification: H00

Suggested Citation

Tetlock, Paul C. and Hahn, Robert W. and Lien, Donald, Designing Information Markets for Decision Making (December 2005). AEI-Brookings Joint Center Working Paper No. 05-23. Available at SSRN: https://ssrn.com/abstract=869031 or http://dx.doi.org/10.2139/ssrn.869031

Paul C. Tetlock (Contact Author)

Columbia Business School - Finance ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www0.gsb.columbia.edu/faculty/ptetlock/

Robert W. Hahn

University of Oxford, Smith School ( email )

Oxford
United Kingdom

Georgetown University

Georgetown Center for Business and Public Policy
Washington, DC 20057
United States

Donald Lien

University of Texas at San Antonio - College of Business - Department of Economics ( email )

6900 North Loop 1604 West
San Antonio, TX 78249
United States
210-458-4313 (Phone)
210-458-4308 (Fax)

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