Since the precedent has been set, let me advertise my new paper:
---------------------------------------------------------------------------
http://hanson.gmu.edu/biashelp.pdf
Manipulators Increase Information Market Accuracy
by Robin Hanson and Ryan Oprea, March 2004
Information markets are low volume markets whose prices offer informative
estimates on particular policy topics of interest. Observers have expressed
concern that such prices might be less informative due to manipulators,
i.e., traders who prefer that we see some policy estimates instead of
others. We adapt a Kyle-style market microstructure model to the case of
information markets, by assuming risk-neutrality and by allowing information
effort and general trader irrationality. We add a trader who has an
additional quadratic preference regarding the price, and we make ordinary
traders uncertain about this manipulator's target price. We find that the
mean target price has no effect on prices, but that increases in the
variance of the target price *increase* price accuracy, by increasing the
returns to informed trading.
---------------------------------------------------------------------------
Robin Hanson [EMAIL PROTECTED] http://hanson.gmu.edu
Assistant Professor of Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323
