

Bluffing Could Be Common In Prediction Markets - senthil_rajasek
http://www.sciencedaily.com/releases/2008/07/080714141308.htm

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dejb
This is an interesting but fairly esoteric point. It requires the following to
be true

1\. The bluffer knows some secret information that is not known by other
participants.

2\. All other market participants must believe the the bluffer is acting on
secret information by their bet.

In a market with many users and anonymous trading I can't see it being worth
the risk to bluff. There are bound to be traders out there who will simply
accept your money when you bet for the 'impossible' result and any money you
make by betting the other way is not likely to compensate.

With non-anonymous trading it is possible that a trader with a high reputation
could pull this off but they would damage their reputation in the process.

~~~
stcredzero
Apparently, Nathan Rothschild used this gambit on the London Stock Exchange.
He had a trusted confederate observe the battle of Waterloo, then rush to
London the moment he determined the outcome of the battle. (Some hours before
it ended.)

Nathan then received this news, then acted _as if the opposite were true_ in
order to manipulate the market to his advantage.

[http://www.rumormillnews.com/cgi-
bin/archive.cgi/noframes/re...](http://www.rumormillnews.com/cgi-
bin/archive.cgi/noframes/read/39506)

~~~
dejb
Interesting information. So it can work once. He obviously had a significant
reputation before this and I'll bet people were a lot more suspicious of his
moves in the future.

~~~
stcredzero
His reputation suffered in one respect, but he made so much money and gained
so much power, it was worth it. In the eyes of many, his reputation as a
shrewd and canny operator was confirmed.

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jedc
I've done a lot of research/consulting in prediction markets. I'm not totally
surprised that in theory bluffing is possible. I've seen cases of market
manipulation in my research.

But I think everyone should look at the results in a different light: Are they
correct??

If the results (either probabilistic results or index results) are accurate,
then if there are minor cases of manipulation who cares? I don't believe that
prediction markets are that different than any other marketplace with minor
concerns of manipulation.

As for accuracy, I've written about that here:

[http://blog.mercury-rac.com/2008/01/25/how-to-interpret-
pred...](http://blog.mercury-rac.com/2008/01/25/how-to-interpret-prediction-
market-results-on-elections/)

(most people, and virtually all journalists, just don't get the math when it
comes to probabilities.)

------
dstowell
PDF of the actual paper: <http://www-
personal.umich.edu/~rsami/papers/manip.pdf>

