Markets as communication systems

Financial markets as adaptive systems

– We show, by studying in detail the market prices of options on liquid markets, that the market has empirically corrected the simple, but inadequate Black-Scholes formula to account for two important statistical features of asset fluctuations: “fat tails” and correlations in the scale of fluctuations. These aspects, although not included in the pricing models, are very precisely reflected in t...

Prediction Markets as institutional forecasting support systems

An attractive feature of Prediction Markets (PMs, also called information markets or virtual stock markets) is that they provide economic incentives for informants to share unique information, i.e., information that no other informants possess. This feature and the broad availability of the Internet have lead to applications of prediction markets in a number of fields. Most reported application...

Prediction Markets as Decision Support Systems

Valuations from “prediction markets” reveal expectations about the likelihood of events. “Conditional prediction markets” reveal expectations conditional on other events occurring. For example, in 1996, the Iowa Electronic Markets (IEM) ran markets to predict the chances that different candidates would become the Republican Presidential nominee. Other concurrent IEM markets predicted the vote s...

Communication impacting financial markets

Commercial markets as communication markets: uncertainty reduction through mediated information exchange in online auctions

This research conceptualizes behaviors in online commercial transactions as communication acts intended to reduce uncertainty between interactants. Uncertainty reduction theory and predicted outcome value theory are used to contextualize individuals’ motivations and behaviors in the risky and uncertain environment of online consumer-to-consumer (C2C) auctions. Data from 6477 randomly-selected a...