DeepAI AI Chat
Log In Sign Up

Budget Constraints in Prediction Markets

by   Nikhil Devanur, et al.

We give a detailed characterization of optimal trades under budget constraints in a prediction market with a cost-function-based automated market maker. We study how the budget constraints of individual traders affect their ability to impact the market price. As a concrete application of our characterization, we give sufficient conditions for a property we call budget additivity: two traders with budgets B and B' and the same beliefs would have a combined impact equal to a single trader with budget B+B'. That way, even if a single trader cannot move the market much, a crowd of like-minded traders can have the same desired effect. When the set of payoff vectors associated with outcomes, with coordinates corresponding to securities, is affinely independent, we obtain that a generalization of the heavily-used logarithmic market scoring rule is budget additive, but the quadratic market scoring rule is not. Our results may be used both descriptively, to understand if a particular market maker is affected by budget constraints or not, and prescriptively, as a recipe to construct markets.


page 1

page 2

page 3

page 4


An Axiomatic Characterization of CFMMs and Equivalence to Prediction Markets

Constant-function market makers (CFMMs), such as Uniswap, are automated ...

Design and Analysis of a Synthetic Prediction Market using Dynamic Convex Sets

We present a synthetic prediction market whose agent purchase logic is d...

An Axiomatic Study of Scoring Rule Markets

Prediction markets are well-studied in the case where predictions are pr...

A New Understanding of Prediction Markets Via No-Regret Learning

We explore the striking mathematical connections that exist between mark...

Roomsemble: Progressive web application for intuitive property search

A successful real estate search process involves locating a property tha...

The Possibilities and Limitations of Private Prediction Markets

We consider the design of private prediction markets, financial markets ...

Learning Performance of Prediction Markets with Kelly Bettors

In evaluating prediction markets (and other crowd-prediction mechanisms)...