Title: The mechanisms of information integration in experimental prediction markets

Authors: Richard D. Jolly; Martin Zwick; Wayne Wakeland; James Woods

Addresses: Systems Science Graduate Program, School of Business Administration, Portland State University, Portland, Oregon, USA ' Systems Science Graduate Program, Portland State University, Portland, Oregon, USA ' Systems Science Graduate Program, Portland State University, Portland, Oregon, USA ' Department of Economics, Portland State University, Portland, Oregon, USA

Abstract: The desire to understand the mechanisms of market information integration motivates this study. Large sample experimental prediction markets with varying feedback mechanisms afforded the study of aggregate and individual's actions. Markets without feedback demonstrated information collection by outperforming the average of their participants. When feedback was introduced the inductive process of information aggregation was observed. This process was seen to simultaneously increase the amount of information assimilated, but also introduce information mirages which tend to decrease the accuracy of the markets - being dependent on the type of data presented to the market. In fact, a market subject to mirage prone data resembles a prisoner's dilemma where individual rationality results in collective irrationality. Individual's responses with feedback revealed characteristics of public and private information integration. Integration for individuals was subtle compared to the more distinct effect in markets, illustrating the emergent nature of information aggregation in markets.

Keywords: information integration; prediction markets; market processes; prisoner's dilemma; information mirage; systems science; complexity science; feedback; information aggregation.

DOI: 10.1504/IJEBR.2015.066032

International Journal of Economics and Business Research, 2015 Vol.9 No.1, pp.100 - 129

Published online: 30 Nov 2014 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article