R.: Gaming prediction markets: Equilibrium strategies with a market maker

Abstract We study the equilibrium behavior of informed traders interacting with market scoring rule (MSR) market makers. One attractive feature of MSR is that it is myopically incentive compatible: it is optimal for traders to report their true be-liefs about the likelihood of an event outcome provi...

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Bibliographic Details
Main Authors: Yiling Chen, Stanko Dimitrov, Rahul Sami, Robin D. Hanson, Lance Fortnow, Rica Gonen, Y. Chen, S. Dimitrov, R. Sami, R. D. Hanson, L. Fortnow, R. Gonen
Other Authors: The Pennsylvania State University CiteSeerX Archives
Format: Text
Language:English
Published: 2010
Subjects:
sami
Online Access:http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.638.7676
http://www.cs.tau.ac.il/~fiat/seminformation/gaming.pdf
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Summary:Abstract We study the equilibrium behavior of informed traders interacting with market scoring rule (MSR) market makers. One attractive feature of MSR is that it is myopically incentive compatible: it is optimal for traders to report their true be-liefs about the likelihood of an event outcome provided that they ignore the impact of their reports on the profit they might garner from future trades. In this paper, we analyze non-myopic strategies and examine what information structures lead to truth-ful betting by traders. Specifically, we analyze the behavior of risk-neutral traders with incomplete information playing in a dynamic game. We consider finite-stage and infinite-stage game models. For each model, we study the logarithmic market Preliminary versions of some of the results in this paper were presented in two conference papers, Chen et al. [10] and Dimitrov and Sami [13].

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