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Betting Strategies, Market Selection, and the Wisdom of Crowds

AAAI Conferences

We investigate the limiting behavior of trader wealth and prices in a simple prediction market with a finite set of participants having heterogeneous beliefs. Traders bet repeatedly on the outcome of a binary event with fixed Bernoulli success probability. A class of strategies, including (fractional) Kelly betting and constant relative risk aversion (CRRA) are considered. We show that when traders are willing to risk only a small fraction of their wealth in any period, belief heterogeneity can persist indefinitely; if bets are large in proportion to wealth then only the most accurate belief type survives. The market price is more accurate in the long run when traders with less accurate beliefs also survive. That is, the survival of traders with heterogeneous beliefs, some less accurate than others, allows the market price to better reflect the objective probability of the event in the long run.


AI Trader 'Sets and Forgets'

#artificialintelligence

Wall Street's use of artificial intelligence passed a milestone earlier this month as the San Francisco-based hedge fund Tech Trader completed 12 months of trading without human interaction, according to fund founder William Mok. "In the last couple of months, we have reached a point where we can self-sustain," said Mok. "We finally made it to an escape velocity where if we do not put in more effort, we are not going to sink back down." Although Tech Trader leaves its decisions up to the AI, it also has automated as much of the investment lifecycle as possible and outsources much of its middle and back office to third parties. "You can point at anything and say that it's not 100% machine," he said "Maybe it's 99% machine. But in practice now, we've been living it for a year and have not had to do anything to it that is related to trading." The fund, which has $20 million of assets under management, trades US equities and exchange traded funds that have a market capitalization of at least $1 billion.



Nasdaq testing artificial intelligence systems to track rogue traders

#artificialintelligence

Nasdaq Inc. is trying to identify would-be white-collar criminals by using artificial intelligence systems originally built to track terrorists and sex traffickers. The exchange is testing systems that analyze data about trading activity against what traders say on their corporate chat and email accounts, in an effort to spot potential insider trading, market manipulation and other crimes faster and more accurately than current surveillance systems can. Parsing the chatter of traders in the time before, during and after transactions -- and matching those findings with trading data -- provides "holistic surveillance," said Bill Nosal, vice president of business development for market technology at Nasdaq NDAQ, -0.56% . "This can show what was happening in the trader's head," Nosal said. The work comes as New York Attorney General Preet Bharara and other state and federal officials step up efforts to prosecute financial crimes.


Nasdaq testing artificial intelligence systems to track rogue traders

#artificialintelligence

Nasdaq Inc. is trying to identify would-be white-collar criminals by using artificial intelligence systems originally built to track terrorists and sex traffickers. The exchange is testing systems that analyze data about trading activity against what traders say on their corporate chat and email accounts, in an effort to spot potential insider trading, market manipulation and other crimes faster and more accurately than current surveillance systems can. Parsing the chatter of traders in the time before, during and after transactions -- and matching those findings with trading data -- provides "holistic surveillance," said Bill Nosal, vice president of business development for market technology at Nasdaq NDAQ, -0.69% . "This can show what was happening in the trader's head," Nosal said. The work comes as New York Attorney General Preet Bharara and other state and federal officials step up efforts to prosecute financial crimes.