Eliminating Public Knowledge Biases in Information-Aggregation Mechanisms

Kay-Yut Chen (), Leslie R. Fine () and Bernardo A. Huberman
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Kay-Yut Chen: Hewlett-Packard Laboratories, Palo Alto, California 94304
Leslie R. Fine: Hewlett-Packard Laboratories, Palo Alto, California 94304
Bernardo A. Huberman: Hewlett-Packard Laboratories, Palo Alto, California 94304

Management Science, 2004, vol. 50, issue 7, 983-994

Abstract: We present a novel methodology for identifying public knowledge and eliminating the biases it creates when aggregating information in small group settings. A two-stage mechanism consisting of an information market and a coordination game is used to reveal and adjust for individuals' public information. A nonlinear aggregation of their decisions then allows for the calculation of the probability of the future outcome of an uncertain event, which can then be compared to both the objective probability of its occurrence and the performance of the market as a whole. Experiments show that this nonlinear aggregation mechanism outperforms both the imperfect market and the best of the participants.

Keywords: game theory; experimental economics; information aggregation; markets; scoring rules; forecasting (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:50:y:2004:i:7:p:983-994

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