Moderators for Partition Dependence in Prediction Markets

Simon Kloker (), Tim Straub () and Christof Weinhardt ()
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Simon Kloker: Karlsruhe Institute of Technology (KIT)
Tim Straub: FZI Forschungszentrum Informatik
Christof Weinhardt: Karlsruhe Institute of Technology (KIT)

Group Decision and Negotiation, 2019, vol. 28, issue 4, No 3, 723-756

Abstract: Abstract Every investment decision by organizations is an implicit expression of a prediction on the future state of companies, demand trends, future challenges, or politics. Usually, decision makers can chose between different options to invest and also tend to diversify investments in order to reduce risk. Research on cognitive processing, however, showed that unconscious heuristics triggered by “heuristic cues” influence such decisions in an irrational manner. Partition dependence, the partition of the state space, is such a heuristic cue that leads to an irrational bias in the assessment of probabilities towards a uniform distribution. This work demonstrates that this bias is also persistent in group-based forecasting. We explain and predict the occurrence of the partition dependence bias by applying the Dual-Process Theory of cognitive processing. The results of our three consecutive experiments suggest that besides task complexity, individual expertise, and motivation are moderators for the occurrence of partition dependence. We contribute to the research of biases in forecasting by applying approaches of the Dual-process Theories to explain the occurrence of partition dependence for the first time and shed light on future pathways in this research field.

Keywords: Partition dependence; Prediction markets; Group-based forecasting; Heuristics; Cognitive biases; Heuristic Systematic Model (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1007/s10726-019-09622-9

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