Manipulation and (Mis)trust in Prediction Markets

Lawrence Choo, Todd R. Kaplan, Ro'i Zultan

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

Markets are increasingly used as information aggregation mechanisms to predict future events. If policymakers and managers use markets to guide policy and managerial decisions, interested parties may attempt to manipulate the market in order to influence decisions. We study experimentally the willingness of managers to base decisions on market information under the shadow of manipulation. We find that when there are manipulators in the market, managers under-utilize the information revealed in prices. Furthermore, mere suspicion of manipulation erodes trust in the market, leading to the implementation of suboptimal policies—even without actual manipulation.

Original languageEnglish
Pages (from-to)6716-6732
Number of pages17
JournalManagement Science
Volume68
Issue number9
DOIs
StatePublished - 1 Sep 2022

Keywords

  • experiment
  • managerial decision making
  • policy
  • prediction markets

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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