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Convergence within binary market scoring rules

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  • Razvan Tarnaud

    (Université Paris 1 Panthéon-Sorbonne)

Abstract

Prediction markets are run to extract information from its participants through financial incentive. The market scoring rule mechanism represents a way of organizing markets in order to foster agents to make sincere predictions. Market scoring rules are usually presented in a context of asset trading, but they also boil down to a sequential probability report process analyzed here. If the future state space is binary (i.e., composed of only two possible states) and only two agents participate alternatively in the market, it is proven that for strictly proper market scoring rules, the report sequences of each agent converge toward limit probability reports which are closer to each other than the subjective probabilities of the agents.

Suggested Citation

  • Razvan Tarnaud, 2019. "Convergence within binary market scoring rules," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(4), pages 1017-1050, November.
    • Handle: RePEc:spr:joecth:v:68:y:2019:i:4:d:10.1007_s00199-018-1155-3
    DOI: 10.1007/s00199-018-1155-3
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    Cited by:

    1. Rabah Amir & Sergei Belkov & Igor V. Evstigneev & Thorsten Hens, 2022. "An evolutionary finance model with short selling and endogenous asset supply," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 73(2), pages 655-677, April.
    2. Felipe R. Durazzo & David Turchick, 2023. "Welfare-improving misreported polls," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(2), pages 523-565, February.
    3. Dian Yu & Jianjun Gao & Weiping Wu & Zizhuo Wang, 2022. "Price Interpretability of Prediction Markets: A Convergence Analysis," Papers 2205.08913, arXiv.org, revised Nov 2023.

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    More about this item

    Keywords

    Prediction market; Risk aversion; Fixed point; Favorite-longshot bias; Equilibrium;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D79 - Microeconomics - - Analysis of Collective Decision-Making - - - Other
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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