Computing equilibria of prediction markets via persuasion

DOI10.1007/978-3-030-35389-6_4MaRDI QIDQ776231zbMATHOpenAlexFDO

Authors Jerry Anunrojwong, Yiling Chen, Bo Waggoner, Haifeng Xu

Publication date 30 June 2020

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)

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.

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Cites work

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

Cited in

(3)

• Gaming prediction markets: equilibrium strategies with a market maker
• Optimizing Bayesian information revelation strategy in prediction markets: the Alice Bob Alice case
• Computational aspects of prediction markets

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