HOW TO PAY TRADERS IN INFORMATION MARKETS: RESULTS FROM A FIELD EXPERIMENT

Authors: Luckner, Stefan¹; Weinhardt, Christof¹

Source: The Journal of Prediction Markets, Volume 1, Number 2, July 2007 , pp. 147-156(10)

Publisher: University of Buckingham Press

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Abstract:

The results of recent studies on prediction markets are encouraging. Prior experience demonstrates that markets with different incentive schemes predicted uncertain future events remarkably accurately. In this paper, we study the impact of different monetary incentives on prediction accuracy in a field experiment. In order to do so, we compare three groups of traders, corresponding to three treatments with different payment schemes, in a prediction market for the FIFA World Cup 2006. Somewhat surprisingly, our results show that performance-related payment schemes do not necessarily increase the prediction accuracy. Due to the risk aversion of traders the competitive environment in a rank-order tournament leads to the best results in terms of prediction accuracy.

Document Type: Research article

Affiliations: 1: Institute of Information Systems and Management, University of Karlsruhe, Germany

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