Betting on the Real Line

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Betting on the Real Line

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Title: Betting on the Real Line
Author: Gao, Xi; Chen, Yiling; Pennock, David M.

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Citation: Gao, Xi, Yiling Chen, and David M. Pennock. 2009. Betting on the real line. In Internet and Network Economics, 5th International Workshop, WINE 2009, Rome, Italy, December 2009, Proceedings, ed. Stefano Leonardi, 553-560. Berlin/Heidelberg: Springer-Verlag.
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Abstract: We study the problem of designing prediction markets for random variables with continuous or countably infinite outcomes on the real line. Our interval betting languages allow traders to bet on any interval of their choice. Both the call market mechanism and two automated market maker mechanisms, logarithmic market scoring rule (LMSR) and dynamic parimutuel markets (DPM), are generalized to handle interval bets on continuous or countably infinite outcomes. We examine problems associated with operating these markets. We show that the auctioneer's order matching problem for interval bets can be solved in polynomial time for call markets. DPM can be generalized to deal with interval bets on both countably infinite and continuous outcomes and remains to have bounded loss. However, in a continuous-outcome DPM, a trader may incur loss even if the true outcome is within her betting interval. The LMSR market maker suffers from unbounded loss for both countably infinite and continuous outcomes.
Published Version: doi:10.1007/978-3-642-10841-9_55
Other Sources: http://www.eecs.harvard.edu/econcs/pubs/Gao09.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:9943223

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  • FAS Scholarly Articles [7106]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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