Experimental & Behavioural Economics Seminar - Aurelien Baillon (Erasmus University Rotterdam)

Room 315, Level 3, FBE Building, 111 Barry Street, Carlton

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Joshua Miller

joshua.miller@unimelb.edu.au

T: +61 3 8344 1014

Title:  Follow the money, not the majority: Incentivizing and aggregating expert opinions with Bayesian markets

Abstract:  For some questions, such as whether extraterrestrial life exists, not only is the answer unknown, but it is also uncertain when and how the answer will be known. In such situations, asking experts for their opinion seems a reasonable thing to do but we face two problems. First, how can we incentivize their truth-telling if we do not know whether or when the correct answer will be known? Second, if they disagree, should we trust the majority? In this paper, we solve both problems simultaneously. We design a market in which experts report their opinion about a statement (endorse it or not), and buy or sell an asset whose value depends on the endorsements. We compute the profits of a representative buyer and seller and select the opinion of the one with the larger profit. We demonstrate theoretically and illustrate empirically that our market elicits truthful answers and that “following the money” outperforms selecting the majority opinion.