Information Acquisition , Information Aggregation , Forecasting , Futures Markets , Prediction Markets
Abstract:
In prediction markets, investors trade assets whose values are contingent on the occurrence
of future events, like election outcomes. Prediction market prices have been
shown to be consistently accurate forecasts of these outcomes, but we don't know
why. I formally illustrate an information acquisition explanation. Traders with more
wealth to invest have stronger incentives to acquire information about the outcome,
thus tend to have better forecasts. Moreover, their trades have larger weight in the
market. The interaction implies that a few well-situated traders can move the asset
price toward the true value. One implication for institutions aggregating information
is to put more weight on votes of agents with larger stakes, which improves on equal
weighting, unless prior distribution accuracy and stakes are negatively related.
Dieser Eintrag ist Teil der Universitätsbibliographie.
Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.
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