Feedback trading in prediction markets

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Robin Hanson is schooled about prediction market trading.

Our guest author to our Master Of All Universes:

Feedback trading just means the kind of momentum trading that is pervasive in traditional assets, again, less so in prediction markets. In the biastest experiment, traders were given formal &#8220-clues&#8221- about the settlement, but for many market participants, the best &#8220-clue&#8221- (even rationally, if lazy) is recent price action. Even if feedback trading was possible within the experiment, the outcome (manipulation attempts were corrected) suggests that it wasn&#8217-t prevalent.

In this experiment, traders were given equal endowments of shares/currency&#8230- i.e. initially had equal account sizes. Yes, there were an equal number of manipulators and non-manipulators, but they could not coordinate. Even if they were implicitly coordinating, this is not the same as a single large trader influencing the market. Yes, in the theory paper trading sizes were variable, but according to the same parameter for each trader. Maybe if there were a large supply of potential traders able to frictionlessly join the manipulated market, a manipulator&#8217-s relatively deep pockets wouldn&#8217-t matter.