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THEORY-810: Prediction-market prices keep much of an arbitrary price shock that no trader's information supports for weeks, rather than correcting it within a short transition phase

2 min read

Properties5
StatusProposed
Tagssocial-science, epistemology
SourceLIT-958 — How manipulable are prediction markets?
ExtendsTHEORY-267 — In Rasooly and Rozzi's pre-registered randomised experiment on 817 Manifold play-money markets, about 59% of a ±5-point price shock that no trader's information supported was still present after 60 days in unresolved markets, with about 25% undone in the first week and reversion slowing after it; their model of finitely many risk-averse traders gives such partial, slowing reversion even with no learning, and the data cannot tell that from learning
AnswersQUESTION-212 — Does a one-off random shock to a prediction-market price persist for weeks on other platforms and at real-money stakes, and do the traders come to believe the shocked price?

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Source

Rasooly and Rozzi (2025), LIT-958, read in NOTE-778: the randomised field experiment (claims C1 and C2, strong), and the follow-up on 110 real-money-convertible markets (C6, weak: no control group, 6–7 days).

What is asserted, and by whom

The thesis is that persistence of unsupported shocks is a property of prediction markets, not of Manifold’s play money: a one-off shock that no information supports is still largely in the price weeks later. The authors’ model, in which finitely many risk-averse traders with price impact undo a shock only partly even without learning, is one explanation; the data cannot tell it from learning from the price, and this entry does not assert the mechanism.

What the record holds toward it

  • THEORY-267 (Active): about 59% of a ±5-point shock still present after 60 days in unresolved Manifold markets, with fast reversion in the first week and slower after.
  • The real-money follow-up, which found manipulability not much changed, is weak support only.

What would confirm or reject it

A second randomised manipulation experiment on another platform, preferably with real money and larger markets, that again finds most of the shock after several weeks would confirm it; one that finds the shock gone within days would reject it beyond Manifold. QUESTION-212 asks this as a question; this entry is the answer Rasooly and Rozzi propose.

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