Strategies and Algorithms in Prediction Markets



Evdokia Nikolova
MIT, Department of Electrical Engineering and Computer Science

Monday  April 27, 2009
4:00 PM, 5130 Upson Hall



Prediction markets are flourishing as a very accurate means of predicting future events (e.g., check out the historical price graph from the Iowa Electronic Market on the 2008 presidential election!)

Despite the use of a number of prediction market models in practice, a lot of research remains to be done on understanding the markets' strategic properties: they are continually subject to gaming and manipulation, which may distort the accuracy of their prediction. But even in the absence of manipulation, the market may fail by having to solve hard computational problems.

In this talk we describe how prediction markets work and then offer new tools and algorithms for their analysis. Some of the results draw on surprising connections to classical combinatorial optimization problems.

This talk is based on the following papers: A Strategic Model for Information Markets with Rahul Sami (ACM EC 07) and Betting on Permutations with Yiling Chen, Lance Fortnow and David Pennock (ACM EC 07).