Price Interpretability of Prediction Markets: A Convergence Analysis. (arXiv:2205.08913v1 [q-fin.TR])

Prediction markets are long known for prediction accuracy. However, there is
still a lack of systematic understanding of how prediction markets aggregate
information and why they work so well. This work proposes a multivariate
utility (MU)-based mechanism that unifies several existing prediction
market-making schemes. Based on this mechanism, we derive convergence results
for markets with myopic, risk-averse traders who repeatedly interact with the
market maker. We show that the resulting limiting wealth distribution lies on
the Pareto efficient frontier defined …

analysis arxiv convergence interpretability markets prediction price