Manipulation and (mis)trust in prediction markets

Lawrence Choo, Todd Kaplan and Ro'i Zultan

No 12/2019, FAU Discussion Papers in Economics from Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics

Abstract: Markets are increasingly used as information aggregation mechanisms to predict future events. If policy makers make use markets, parties may attempt to manipulate the market in order to influence decisions. We experimentally find that policymakers could still benefit from following information contained in market prices. Nonetheless, manipulation is detrimental. First, manipulators affect market prices, making them less informative. Second, when there are manipulators, policy makers often ignore - or even act against - the information revealed in market prices. Finally, mere suspicion of manipulation erodes trust in the market, leading to the implementation of suboptimal policies - even without actual manipulation.

Keywords: prediction markets; policy; experiment (search for similar items in EconPapers)
JEL-codes: C92 D53 D8 G14 (search for similar items in EconPapers)
Date: 2019
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Related works:
Journal Article: Manipulation and (Mis)trust in Prediction Markets (2022)
Working Paper: MANIPULATION AND (MIS)TRUST IN PREDICTION MARKETS (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwqwdp:122019

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