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Betting markets are gaining in popularity. Mean beliefs generally differ from prices in prediction markets. Logarithmic utility is employed to study the risk and return adjustments to prices. Some consequences are described. A modified…
Prediction markets are a popular, prominent, and successful structure for a collective intelligence platform. However the exact mechanism by which information known to the participating traders is incorporated into the market price is…
It is a common misconception that in order to make consistent profits as a trader, one needs to posses some extra information leading to an asset value estimation more accurate than that reflected by the current market price. While the idea…
The Artificial Prediction Market is a recent machine learning technique for multi-class classification, inspired from the financial markets. It involves a number of trained market participants that bet on the possible outcomes and are…
We examine two types of binary betting markets, whose primary goal is for profit (such as sports gambling) or to gain information (such as prediction markets). We articulate the interplay between belief and price-setting to analyse both…
How do we design and deploy crowdsourced prediction platforms for real-world applications where risk is an important dimension of prediction performance? To answer this question, we conducted a large online Wisdom of the Crowd study where…
Prediction markets mobilize financial incentives to forecast binary event outcomes through the aggregation of dispersed beliefs and heterogeneous information. Their growing popularity and demonstrated predictive accuracy in political…
Prediction markets are long known for prediction accuracy. This study systematically explores the fundamental properties of prediction markets, addressing questions about their information aggregation process and the factors contributing to…
We consider a financial market in which traders potentially face restrictions in trading some of the available securities. Traders are heterogeneous with respect to their beliefs and risk profiles, and the market is assumed thin: traders…
Prediction markets aggregate agents' beliefs regarding a future event, where each agent is paid based on the accuracy of its reported belief when compared to the realized outcome. Agents may strategically manipulate the market (e.g., delay…
Human forecasting accuracy in practice relies on the 'wisdom of the crowd' effect, in which predictions about future events are significantly improved by aggregating across a crowd of individual forecasters. Past work on the forecasting…
In this paper I empirically investigate prediction markets for binary options. Advocates of prediction markets have suggested that asset prices are consistent estimators of the "true" probability of a state of the world being realized. I…
We consider a model in which a trader aims to maximize expected risk-adjusted profit while trading a single security. In our model, each price change is a linear combination of observed factors, impact resulting from the trader's current…
We explore the striking mathematical connections that exist between market scoring rules, cost function based prediction markets, and no-regret learning. We show that any cost function based prediction market can be interpreted as an…
Prediction markets are used in real life to predict outcomes of interest such as presidential elections. This paper presents a mathematical theory of artificial prediction markets for supervised learning of conditional probability…
In this paper we present a mathematical model for collaborative filtering implementation in stock market predictions. In popular literature collaborative filtering, also known as Wisdom of Crowds, assumes that group has a greater knowledge…
We give a detailed characterization of optimal trades under budget constraints in a prediction market with a cost-function-based automated market maker. We study how the budget constraints of individual traders affect their ability to…
We propose a prediction model based on the minority game in which traders continuously evaluate a complete set of trading strategies with different memory lengths using the strategies' past performance. Based on the chosen trading strategy…
This paper is part of an ongoing investigation of "pragmatic information", defined in Weinberger (2002) as "the amount of information actually used in making a decision". Because a study of information rates led to the Noiseless and Noisy…
We present an experimental and simulated model of a multi-agent stock market driven by a double auction order matching mechanism. Studying the effect of cumulative information on the performance of traders, we find a non monotonic…