Improving decisions with market information: an experiment on corporate prediction markets

Ahrash Dianat () and Christoph Siemroth
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Ahrash Dianat: University of Essex

Experimental Economics, 2021, vol. 24, issue 1, No 7, 143-176

Abstract: Abstract We conduct a lab experiment to investigate an important corporate prediction market setting: A manager needs information about the state of a project, which workers have, in order to make a state-dependent decision. Workers can potentially reveal this information by trading in a corporate prediction market. We test two different market designs to determine which provides more information to the manager and leads to better decisions. We also investigate the effect of top-down advice from the market designer to participants on how the prediction market is intended to function. Our results show that the theoretically superior market design performs worse in the lab—in terms of manager decisions—without top-down advice. With advice, manager decisions improve and both market designs perform similarly well, although the theoretically superior market design features less mis-pricing. We provide a behavioral explanation for the failure of the theoretical predictions and discuss implications for corporate prediction markets in the field.

Keywords: Asymmetric information; Corporate prediction markets; Lab experiment; Market design (search for similar items in EconPapers)
JEL-codes: C92 D47 D53 D82 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10683-020-09654-y

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