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Bluffing and Strategic Reticence in Prediction Markets |
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with Yiling Chen , Daniel M. Reeves, David M. Pennock, Robin D. Hanson and L. Fortnow |
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In a prediction market using a logarithmic market scoring rule market maker, there exist joint probability distributions on signals such that agents have an incentive to bid against their own information---strategically misleading other agents in order to later correct the price. The dynamic parimutuel market suffers from another problem: even with uncorrelated signals, agents may have an incentive to withhold information if they believe others may have better signals later. |
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