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The design of improved parimutuel-type information aggregation mechanisms: Inaccuracies and the long-shot bias as disequilibrium phenomena

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Author Info

  • Axelrod, Boris S.
  • Kulick, Ben J.
  • Plott, Charles R.
  • Roust, Kevin A.

Abstract

Information aggregation mechanisms (IAMs) based on parimutuel-type betting systems can aggregate information from complex environments. However, the performance of previously studied systems is imperfect due to possible bluffing, strategic timing of decisions, and "long-shot bias". This paper demonstrates two modifications of parimutuel systems that improve information aggregation performance by removing disinformation due to strategic behavior and by removing misleading disequilibrium behavior. These experiments also demonstrate that "long-shot bias" results from disequilibrium behavior as opposed to being inherent in the psychology of the individuals.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 69 (2009)
Issue (Month): 2 (February)
Pages: 170-181

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Handle: RePEc:eee:jeborg:v:69:y:2009:i:2:p:170-181

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Information aggregation Parimutuel Forecasting;

References

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  1. Plott, Charles R. & Sunder, Shyam., . "Efficiency of Experimental Security Markets with Insider Information: An Application of Rational Expectations Models," Working Papers 331, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Plott, Charles R & Sunder, Shyam, 1988. "Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets," Econometrica, Econometric Society, vol. 56(5), pages 1085-1118, September.
  3. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  5. Colin F. Camerer, 1998. "Can Asset Markets Be Manipulated? A Field Experiment with Racetrack Betting," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 457-482, June.
  6. Charles R. Plott & Jorgen Wit & Winston C. Yang, 2003. "Parimutuel betting markets as information aggregation devices: experimental results," Economic Theory, Springer, vol. 22(2), pages 311-351, 09.
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Cited by:
  1. Noussair, C.N. & Tucker, S., 2013. "Experimental Research On Asset Pricing," Discussion Paper 2013-020, Tilburg University, Center for Economic Research.

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