How Manipulable Are Prediction Markets ?

Itzhak Rasooly and Roberto Rozzi
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Itzhak Rasooly: ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Roberto Rozzi: UNISI - Università degli Studi di Siena = University of Siena

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Abstract: In this paper, we conduct a large-scale field experiment to investigate the manipulability of prediction markets. The main experiment involves randomly shocking prices across 817 separate markets; we then collect hourly price data to examine whether the effects of these shocks persist over time. We find that prediction markets can be manipulated: the effects of our trades are visible even 60 days after they have occurred. However, as predicted by our model, the effects of the manipulations somewhat fade over time. Markets with more traders, greater trading volume, and an external source of probability estimates are harder to manipulate.

Keywords: Prediction Markets; Field Experiment (search for similar items in EconPapers)
Date: 2025-03-26
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-05022889v1
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