Strategies and Algorithms in Prediction Markets
Evdokia Nikolova
MIT, Department of Electrical Engineering and Computer Science
Abstract:
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).