Verification of the Effect of Introducing an Agent in a Prediction Market

Abstract

In recent years, attention to “prediction markets”, which make predictions of the future using market mechanisms, has been increasing. A prediction market applies techniques of experimental markets that have been used in the field of experimental economics to make predictions. A prediction market is a market in which participants make trades of securities predicting the result of a certain event that will be decided in the future. A security provides a dividend based on the result of the event, and the price of the security serves as predictor of the event’s realization probability. A participant predicts the event’s result from various sources of information related to the target phenomenon, and he trades to gain profits from his predictions. From the market price of the result we can suppose think that all the members predictions have been unified. Some of the prediction markets in the U.S. are the Iowa Electronic Market (IEM) and the Hollywood Stock Exchange (HSX). Some of the prediction markets in Japan are at sites such as Shuugi.in and Kounaru. The IEM prediction market in the United States has been effective in predicting election outcomes. It has correctly predicted 75% of the results of elections traded on its exchange, a success rate that compares favorably with that of opinion polls. Thus, in this research, we studied what kind of influence the use of an agent had on a prediction market. For example, we studied how much influence an agent would have on predictive accuracy through an increase in trading volume.