An Experiment
Jennifer Hulett
Prediction Markets in Science, by Johan Almenberg, Ken Kittlitz,
Thomas Pfeiffer
Received: August 12, 2009; Accepted: December 3, 2009; Published:
December 30, 2009
Abstract
Prediction markets are powerful forecasting tools. They have the
potential to aggregate private information, to generate and
disseminate a consensus among the market participants, and to provide
incentives for information acquisition. These market functionalities
can be very valuable for scientific research. Here, we report an
experiment that examines the compatibility of prediction markets with
the current practice of scientific publication. We investigated three
settings. In the first setting, different pieces of information were
disclosed to the public during the experiment. In the second setting,
participants received private information. In the third setting, each
piece of information was private at first, but was subsequently
disclosed to the public. An automated, subsidizing market maker
provided additional incentives for trading and mitigated liquidity
problems. We find that the third setting combines the advantages of
the first and second settings. Market performance was as good as in
the setting with public information, and better than in the setting
with private information. In contrast to the first setting,
participants could benefit from information advantages. Thus the
publication of information does not detract from the functionality of
prediction markets. We conclude that for integrating prediction
markets into the practice of scientific research it is of advantage to
use subsidizing market makers, and to keep markets aligned with
current publication practice.
Warm Regards,
Jennifer
www.pmclusters.com