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ANC Workshop: Danilo Orlando and Jinli Hu, Chair: Emilia Wysocka

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What
  • ANC Workshop Talk
When Oct 20, 2015
from 11:00 AM to 12:00 PM
Where IF 4.31/4.33
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Jinli Hu

"Understanding prediction market microstructure."

Prediction markets are markets which offers financial securities whose monetary value depends on future events. A key hypothesis is that prediction markets aggregate traders information to form informative prices. Here we briefly discuss how the microstructure works to achieve this hypothesis. The basic conclusion is that prediction markets driven by certain market makers optimize a ``resource reallocation problem'', a dual problem of the ``consensus problem'' which is commonly seen in the opinion pooling literature.

It is worth noting that, from the pure optimisation point of view, prediction market is not the best optimizer for solving such problems. However, in addition to optimizing, it uses financial incentives to encourage agents to report their beliefs. The idea of ``pay for information'' has been perfectly reflected in the prediction market, making it a promising framework for crowdsourced opinion pooling.