Social Network-Embedded Prediction Markets: The Effects of Information Acquisition and Communication on Predictions
Decision Support Systems (2013), 55(4), 978-987
Posted: 9 Nov 2013
Date Written: November 7, 2013
Information aggregation mechanisms are designed explicitly for collecting and aggregating dispersed information. An excellent example of the use of this “wisdom of crowds” is a prediction market. The purpose of our social network-embedded prediction market is to suggest that carefully designed market mechanisms can elicit and gather dispersed information that can improve our predictions. Simulation results show that our network-embedded prediction market can produce better predictions as a result of the information exchange in social networks and can outperform other non-networked prediction markets. It is shown that forecasting errors decrease with the cost of acquiring information in a network-embedded prediction market. We also develop an information system that combines the power of prediction markets with the popularity of Twitter.
Keywords: Prediction market; Social network; Information acquisition
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