On Manipulation in Information Aggregation Markets
Martin Strobel, Department of Economics, Maastricht University
Markets may not only be used as mechanisms to allocate scarce resources but also to aggregate information. In particular markets with state contingent claims have been shown to quickly incorporate new information and to deliver good predictions about future states of the world. These so-called prediction markets have been applied to predict the outcome of elections, sales figures of new products, deadline compliance of projects, etc. In some of the markets, however, some evidence for manipulation was found. In the presentation we first show an example demonstrating how and why such manipulations work. Then we report on the results of an experiment testing the robustness of prediction markets with respect to manipulation. The results show that manipulations do have an effect on the prediction although weaker than expected.