- Differential Liquidity Allocation in Prediction Markets
- Project Year:
2025
- REU Student (s):
Jonathan Pei | University of Pennsylvania PA
- Student 1 Institution:
University of Pennsylvania
- Project Mentor:
Xintong Wang
- Project Mentor Area:
Computer Science
- Project Abstract:
A prediction market over a set of outcomes enables participants to trade based on their beliefs, with market prices reflecting the perceived probabilities of each outcome. Market designers often employ such markets to elicit information about the underlying probability distribution of an event of interest. We introduce a market design that allows the designer to allocate liquidity selectively across different subsets of outcomes. This targeted allocation causes prices in selected regions to be more or less sensitive to trading activity, enabling finer control over how beliefs are aggregated. Compared to the traditional LMSR, our approach achieves improved probability elicitation in regions of interest, while preserving the same worst-case loss guarantee
