Abstract

Abstract. A dynamic pari-mutuel market (DPM) is a hybrid between a continuous double auction (CDA) and a pari-mutuel market. Like a CDA, a DPM incentivizes traders to reveal their information early. Like a pari-mutuel market, a DPM has infinite liquidity, allowing trades at any time. In this paper, we examine empirical questions related to DPMs: Do prices in DPMs predict events of interests? How do traders behave in DPMs? Leveraging a data set from the Yahoo!/O’Reilly Tech Buzz Game, a live system using the DPM, we show that prices offer informative forecasts of future event trends. At the agent level, we find that on average human traders outperform robot traders who randomly place trades. Those human traders who are seemingly more rational, buying when the implied market probability is low and selling when it is high, obtain higher profit on average than those who appear less rational. We examine other aspects of the game, including incentives to manipulate the market. 1

Citations