Social Network-Embedded Prediction Markets: The Effects of Information Acquisition and Communication on Predictions

Decision Support Systems (2013), 55(4), 978-987

Posted: 9 Nov 2013

See all articles by Liangfei Qiu

Liangfei Qiu

University of Florida - Warrington College of Business Administration

Huaxia Rui

University of Rochester - Simon Business School

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management

Date Written: November 7, 2013

Abstract

Information aggregation mechanisms are designed explicitly for collecting and aggregating dispersed information. An excellent example of the use of this “wisdom of crowds” is a prediction market. The purpose of our social network-embedded prediction market is to suggest that carefully designed market mechanisms can elicit and gather dispersed information that can improve our predictions. Simulation results show that our network-embedded prediction market can produce better predictions as a result of the information exchange in social networks and can outperform other non-networked prediction markets. It is shown that forecasting errors decrease with the cost of acquiring information in a network-embedded prediction market. We also develop an information system that combines the power of prediction markets with the popularity of Twitter.

Keywords: Prediction market; Social network; Information acquisition

Suggested Citation

Qiu, Liangfei and Rui, Huaxia and Whinston, Andrew B., Social Network-Embedded Prediction Markets: The Effects of Information Acquisition and Communication on Predictions (November 7, 2013). Decision Support Systems (2013), 55(4), 978-987, Available at SSRN: https://ssrn.com/abstract=2351510

Liangfei Qiu (Contact Author)

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

HOME PAGE: http://sites.google.com/site/qiuliangfei/

Huaxia Rui

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Andrew B. Whinston

University of Texas at Austin - Department of Information, Risk and Operations Management ( email )

CBA 5.202
Austin, TX 78712
United States
512-471-8879 (Phone)

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