Computing equilibria of prediction markets via persuasion

DOI10.1007/978-3-030-35389-6_4zbMATH Open1435.91181arXiv2009.03607OpenAlexW2990994751MaRDI QIDQ776231FDOQ776231

Haifeng Xu, Jerry Anunrojwong, Yiling Chen, Bo Waggoner

Publication date: 30 June 2020

Abstract: We study the computation of equilibria in prediction markets in perhaps the most fundamental special case with two players and three trading opportunities. To do so, we show equivalence of prediction market equilibria with those of a simpler signaling game with commitment introduced by Kong and Schoenebeck (2018). We then extend their results by giving computationally efficient algorithms for additional parameter regimes. Our approach leverages a new connection between prediction markets and Bayesian persuasion, which also reveals interesting conceptual insights.

Full work available at URL: https://arxiv.org/abs/2009.03607

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Signaling and communication in game theory (91A28)

Cites Work

• Strictly Proper Scoring Rules, Prediction, and Estimation
• Elicitation of Personal Probabilities and Expectations
• MEASURES OF THE VALUE OF INFORMATION
• Bayesian persuasion with multiple senders and rich signal spaces
• Bayes correlated equilibrium and the comparison of information structures in games
• Information aggregation in dynamic markets with strategic traders
• Gaming prediction markets: equilibrium strategies with a market maker
• Persuasion of a Privately Informed Receiver
• An axiomatic characterization of wagering mechanisms

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