Fraud detection in play-money prediction markets
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Prediction markets are increasingly used to aggregate information on particular future events of interest such as elections, sports events, and Oscar winners. However, prediction markets are sensitive to manipulation and price distortions. In this paper, we show evidence for fraud in a play-money sports prediction market. In contrast to the often considered outcome manipulation in the context of political stock markets we were only looking for violations of our general terms and conditions, i.e., for traders creating multiple user accounts and trading against themselves in order to transfer cash from one account to another. We found evidence of suchlike coalitions and received complaints about it by annoyed traders. We discuss possible countermeasures in order to avoid or at least detect this kind of fraud in play-money prediction markets and present a tool which can be used to detect coalition building while operating a market.
KeywordsPrediction markets Fraud detection Manipulation Coalition building
This work is based on research funded by the German Federal Ministry for Education and Research under grant number 01HQ0522 and by the German Research Foundation (DFG) within the scope of the Graduate School Information Management and Market Engineering (IME). The authors are responsible for the content of this publication.
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