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The Consumer Behavior of Prediction Markets

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Is anyone aware of any research (scholarly or industry-based) examining bias in prediction markets, including how consumers form judgments in prediction markets and the extent of bias in those judgments.

In fact, I’d be interested in any research that looks at prediction markets from the consumer’s perspective. For example, are there any papers that rigorously examine the psychology of why prediction markets have the potential to be more accurate than other forms of forecasting? I&#8217-m aware of papers that look at the design, incentives, management, manipulation and regulatory issues, and I&#8217-ve seen some discussion of the cognitive biases (drawing on behavioral decision theory) that can arise (e.g. assimilation-contrast bias), but I haven&#8217-t seen anything that looks at things from the consumer behavior theory perspective.

One interesting thing about the eLab eXchange (currently featuring &#8220-non-trading prediction markets&#8221-) is that we can use it to test some theories about how consumer judgments are influenced by other consumers (as opposed to the heuristics they might use to make judgments or the cognitive biases that influence their judgments) and about how these judgments can be influenced by various market feedback mechanisms we can set up.

Before we start designing some experiments, I want to make sure we’re not reinventing the wheel.

I’d be grateful for any pointers to research in this area.

Feel free to email me at donna.hoffman@ucr.edu