Bulletin of the American Physical Society
APS March Meeting 2023
Volume 68, Number 3
Las Vegas, Nevada (March 5-10)
Virtual (March 20-22); Time Zone: Pacific Time
Session A02: Network Theory and Applications to Complex Systems
8:00 AM–11:00 AM,
Monday, March 6, 2023
Room: Room 125
Sponsoring
Unit:
GSNP
Chair: Guido Caldarelli, University of Venice Ca'Foscari
Abstract: A02.00009 : Prediction Market Miscalibration Reveals Aggregate Investor Behavior in Financial Networks
10:00 AM–10:12 AM
Presenter:
Keanu M Rock
(Toronto Metropolitan University)
Authors:
Keanu M Rock
(Toronto Metropolitan University)
Sean P Cornelius
(Toronto Metropolitan University)
Jordan Lanctot
(Toronto Metropolitan University)
Collaborations:
Sean P. Cornelius Research Team, Toronto Metropolitan University Physics Department, Predict-It Team
Here, we use ~3200 unique political PM contracts to see how investor behavior leads to price convergence. We use a novel metric to retrieve contract prices on days before all information is incorporated, asking if they accurately reflect the ground-truth likelihood of similar past events. We find that investors systematically overvalue contracts, an effect that is counterintuitively most pronounced in high-profile markets such as US presidential races. Our results highlight investor behavior, and should be taken in context with modeling price dynamics over financial networks [5].
References:
[1] J. Wolfers and E. Zitzewitz, Interpreting Prediction Market Prices as Probabilities, (2006). Tech. rep., National Bureau of Economic Research.
[2] J. E. Berg, F. D. Nelson, and T. A. Rietz, Prediction Market Accuracy in the Long Run, Int J Forecasting 24, 285 (2008).
[3] T. Auld and O. Linton, The Behaviour of Betting and Currency Markets on the Night of the EU Referendum, Int J Forecasting 35, 371 (2019).
[4] J. Fry and A. Brint, Bubbles, Blind-Spots and Brexit, Risks 5, 37 (2017).
[5] A. Mancini, A. Desiderio, R. D. Clemente, and G. Cimini, Self-Induced Consensus of Reddit Users to Characterise the GameStop Short Squeeze, Sci Rep-Uk 12, 13780 (2022).
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