Eliciting Forecasts from Self-interested Experts: Scoring Rules for Decision Makers

Details Eliciting Forecasts from Self-interested Experts: Scoring Rules for Decision Makers Eliciting Forecasts from Self-interested Experts: Scoring Rules for Decision Makers

2011-06-13

arxiv.org/abs/1106.2489v1

Computer Science

Computer Science and Game Theory

11 pages 4 figures pdflatex See http://www.cs.toronto.edu/~cebly/papers.html

Scientific paper

Scoring rules for eliciting expert predictions of random variables are usually developed assuming that experts derive utility only from the quality of their predictions (e.g., score awarded by the rule, or payoff in a prediction market). We study a more realistic setting in which (a) the principal is a decision maker and will take a decision based on the expert's prediction; and (b) the expert has an inherent interest in the decision. For example, in a corporate decision market, the expert may derive different levels of utility from the actions taken by her manager. As a consequence the expert will usually have an incentive to misreport her forecast to influence the choice of the decision maker if typical scoring rules are used. We develop a general model for this setting and introduce the concept of a compensation rule. When combined with the expert's inherent utility for decisions, a compensation rule induces a net scoring rule that behaves like a normal scoring rule. Assuming full knowledge of expert utility, we provide a complete characterization of all (strictly) proper compensation rules. We then analyze the situation where the expert's utility function is not fully known to the decision maker. We show bounds on: (a) expert incentive to misreport; (b) the degree to which an expert will misreport; and (c) decision maker loss in utility due to such uncertainty. These bounds depend in natural ways on the degree of uncertainty, the local degree of convexity of net scoring function, and natural properties of the decision maker's utility function. They also suggest optimization procedures for the design of compensation rules. Finally, we briefly discuss the use of compensation rules as market scoring rules for self-interested experts in a prediction market.

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