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A Strategic Model for Information Markets
Evdokia Nikolova & Rahul Sami
Information markets, which are designed specifically to aggregate traders'
information, are becoming increasingly popular as a means for predicting
future events. Recent research in information markets has resulted in
two new designs, market scoring rules and dynamic parimutuel markets.
We develop an analytic method to guide the design and strategic analysis
of information markets. Our central contribution is a new abstract betting
game, the segment game, that serves as a useful model for information
markets. We demonstrate that this game can serve as a strategic model
of dynamic parimutuel markets, and also captures the essence of the strategies
in market scoring rules. The segment game is tractable to analyze, and
has an attractive geometric visualization that makes the strategic moves
and interactions more transparent. We use it to prove several strategic
properties about the dynamic parimutuel market. We also prove that a special
form of the segment game is strategically equivalent to the spherical
scoring rule, and it is strategically similar to other scoring rules.
Finally, we illustrate two applications of the model to analysis of complex
strategic scenarios: we analyze the precision of a market in which traders
have inertia, and a market in which a trader can profit by manipulating
another trader's beliefs.
References:
[1] Evdokia Nikolova and Rahul Sami. ``A
Strategic Model for Information Markets." In Proceedings of 2007
ACM Conference on Electronic Commerce (ACM EC 2007).
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