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Do prediction markets aid defenders in a weak-link contest?

Cary Deck, Li Hao and David Porter

Journal of Economic Behavior & Organization, 2015, vol. 117, issue C, 248-258

Abstract: Laboratory experiments have demonstrated that prediction market prices weakly aggregate the disparate information of the traders about states (moves) of nature. However, in many practical applications one is attempting to predict the move of a strategic rival. This is particularly important in aggressor–defender contests. This paper reports an experiment where the defender may have the advantage of observing a prediction market on the aggressor's action. The results of the experiments indicate that: the use of prediction markets does not increase the defender's win rate; prediction markets contain reliable information regarding aggressors’ decisions that is not being exploited by defenders; and the existence of a prediction market does not alter the behavior of the aggressor whose behavior is being forecast.

Keywords: Information aggregation; Prediction markets; Weak-link contests; Colonel Blotto (search for similar items in EconPapers)
JEL-codes: C7 C9 D7 D8 G1 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Do Prediction Markets Aid Defenders in a Weak-Link Contest? (2013) Downloads
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DOI: 10.1016/j.jebo.2015.06.019

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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