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Predicting Uncertain Outcomes Using Information Markets: Trader Behavior And Information Aggregation

Author

Listed:
  • YILING CHEN

    (Yahoo! Research, 45 West 18th Street, 6th Floor, New York, NY 10011, USA)

  • CHAO-HSIEN CHU

    (School of Information Systems, Singapore Management University, 80 Stamford Road, Singapore 178902, Singapore)

  • TRACY MULLEN

    (College of Information Sciences and Technology, The Pennsylvania State University, University Park, PA 16802, USA)

Abstract

Forecasting seems to be a ubiquitous endeavor in human societies. In this paper, information markets are introduced as a promising mechanism for predicting uncertain outcomes. Information markets are markets that are specially designed for aggregating information and making predictions on future events. A generic model of information markets is proposed. We derive some fundamental properties on when information markets can converge to the direct communications equilibrium, which aggregates all information across traders and is the best possible prediction for the event under consideration. Information markets, if properly designed, have substantial potential to facilitate organizations in making better informed decisions.

Suggested Citation

  • Yiling Chen & Chao-Hsien Chu & Tracy Mullen, 2006. "Predicting Uncertain Outcomes Using Information Markets: Trader Behavior And Information Aggregation," New Mathematics and Natural Computation (NMNC), World Scientific Publishing Co. Pte. Ltd., vol. 2(03), pages 281-297.
    • Handle: RePEc:wsi:nmncxx:v:02:y:2006:i:03:n:s179300570600052x
    DOI: 10.1142/S179300570600052X
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    References listed on IDEAS

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    1. Ariel Rubinstein, 1997. "Modeling Bounded Rationality," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262681005, April.
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    Cited by:

    1. MohammadAmin Fazli & Azin Ghazimatin & Jafar Habibi & Hamid Haghshenas, 2016. "Team selection for prediction tasks," Journal of Combinatorial Optimization, Springer, vol. 31(2), pages 743-757, February.
    2. Robert L. Winkler & Yael Grushka-Cockayne & Kenneth C. Lichtendahl Jr. & Victor Richmond R. Jose, 2019. "Probability Forecasts and Their Combination: A Research Perspective," Decision Analysis, INFORMS, vol. 16(4), pages 239-260, December.

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