An Axiomatic Characterization of Continuous-Outcome Market Makers

DSpace/Manakin Repository

An Axiomatic Characterization of Continuous-Outcome Market Makers

Citable link to this page

. . . . . .

Title: An Axiomatic Characterization of Continuous-Outcome Market Makers
Author: Chen, Yiling; Gao, Xi

Note: Order does not necessarily reflect citation order of authors.

Citation: Gao, Xi Alice and Yiling Chen. 2010. An axiomatic characterization of continuous-outcome market makers. In Proceedings of the 6th international conference on internet and network economics, ed. Amin Saberi, 505-514. Berlin: Springer Verlag. Lecture Notes in Computer Science 6484.
Full Text & Related Files:
Abstract: Most existing market maker mechanisms for prediction markets are designed for events with a finite number of outcomes. All known attempts on designing market makers for forecasting continuous-outcome events resulted in mechanisms with undesirable properties. In this paper, we take an axiomatic approach to study whether it is possible for continuous-outcome market makers to satisfy certain desirable properties simultaneously. We define a general class of continuous-outcome market makers, which allows traders to express their information on any continuous subspace of their choice. We characterize desirable properties of these market makers using formal axioms. Our main result is an impossibility theorem showing that if a market maker offers binary-payoff contracts, either the market maker has unbounded worst case loss or the contract prices will stop being responsive, making future trades no longer profitable. In addition, we analyze a mechanism that does not belong to our framework. This mechanism has a worst case loss linear in the number of submitted orders, but encourages some undesirable strategic behavior.
Published Version: doi:10.1007/978-3-642-17572-5
Other Sources: http://www.yiling.seas.harvard.edu/files/wine10-publisher.pdf
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:5027217

Show full Dublin Core record

This item appears in the following Collection(s)

  • FAS Scholarly Articles [7450]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

Search DASH


Advanced Search
 
 

Submitters