Markets are increasingly used as information aggregation mechanisms to predict future events. If policymakers and managers use markets to guide policy and managerial decisions, interested parties may attempt to manipulate the market in order to influence decisions. We study experimentally the willingness of managers to base decisions on market information under the shadow of manipulation. We find that when there are manipulators in the market, managers under-utilize the information revealed in prices. Furthermore, mere suspicion of manipulation erodes trust in the market, leading to the implementation of suboptimal policies—even without actual manipulation.
Bibliographical noteFunding Information:
History: Accepted by Yan Chen, behavioral economics and decision analysis. Funding: Financial support from the International Foundation for Research in Experimental Economics is gratefully acknowledged. This research is partially supported by a National Science Foundation of China key project [Grant 72033006] and the Israel Science Foundation [Grant 398/21]. Supplemental Material: Data and the online appendix are available at https://doi.org/10.1287/mnsc.2021. 4213.
Financial support from the International Foundation for Research in Experimental Economics is gratefully acknowledged. This research is partially supported by a National Science Foundation of China key project [Grant 72033006] and the Israel Science Foundation [Grant 398/21]. The authors thank seminar participants at Samford University, University of Exeter, University of Erlangen-Nuremberg, University of Haifa, Technion, Southwestern University of Finance and Economics in Chengdu, Brunel University, University of Nottingham, Ruppin Academic Center, and conference participants at the Economic Science Association international meeting in Berlin, Experimental Finance meeting in Heidelberg, 9th Workshop on Theoretical and Experimental Economics in Munich, the Israel Behavioral Finance meeting, Society for the Advancement of Economic Theory (SAET) in Ischia, DMEP-Ratio Meeting in Beer Sheva, and the Econometric Society European Meeting in Manchester for useful comments and discussion.
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- managerial decision making
- prediction markets
ASJC Scopus subject areas
- Strategy and Management
- Management Science and Operations Research