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Computing Equilibria of Prediction Markets via Persuasion
We study the computation of equilibria in prediction markets in perhaps the
most fundamental special case with two players and three trading opportunities.
To do so, we show equivalence of prediction market equilibria with those of a
simpler signaling game with commitment introduced by Kong and Schoenebeck
(2018). We then extend their results by giving computationally efficient
algorithms for additional parameter regimes. Our approach leverages a new
connection between prediction markets and Bayesian persuasion, which also
reveals interesting conceptual insights