Designing markets for prediction

Yiling Chen, David M. Pennock

Research output: Contribution to journalArticlepeer-review

43 Scopus citations

Abstract

A number of prediction mechanisms have been surveyed to elicit predictions, many newly proposed within the last decade. The primary goal of a prediction mechanism is to obtain and aggregate dispersed information, which often exists in tacit forms as beliefs, opinions, or judgments of agents. A prediction market is one type of prediction mechanism. A prediction market offers contracts whose future payoff is tied to outcomes of an event of particular interest and attracts participants to trade the contract. The use of prediction markets for information aggregation was inspired by the informational efficiency of financial markets. The simplest prediction mechanism is a scoring rule, or payment to a single expert in return for her information. Market scoring rules (MSRs) are a family of automated market maker mechanisms. Another automated market maker mechanism is the dynamic parimutuel market (DPM), where traders who wager on the true outcome in DPM split the total pool of money at the end of the market, in proportion to the amount they wagered.

Original languageEnglish (US)
Pages (from-to)42-52
Number of pages11
JournalAI Magazine
Volume31
Issue number4
DOIs
StatePublished - 2010
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Artificial Intelligence

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