Information Markets: A New Way of Making Decisions, Robert Hahn & Paul Tetlock, eds., AEI-Brookings Press, 2006
This paper looks at how to encourage people to make useful analysis public.
Letting people make a profit by persuading others that their predictions are correct will encourage them to reveal their reasoning.
In an information market, buyers and sellers make or lose money depending on whether their predictions are correct. Predictions are more reliable, because the most accurate predictions earn more and the least accurate lose.
Usually participants have no reason to reveal the analysis underlying their predictions, perhaps because releasing information is costly or because they can use private information strategically.
Designing market rules to encourage participants to reveal analysis as well as trading on it could be useful.
E.g. a market designed to predict the outcome of court cases would be more useful if legal analysis were offered along with predictions.
To encourage information disclosure, the market rules would reward participants who make predictions, and who persuade later participants to adopt the same theory.
This will work best in small markets, because in large ones the release of an individuals’ analysis is unlikely to affect prices.
Participants will sometimes reveal false information, but others could profit from proving it false.