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Parimutuel betting markets as information aggregation devices: experimental results

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Author Info
Charles R. Plott
Jorgen Wit
Winston C. Yang
Abstract

The demonstrated capacity of markets to aggregate information motivates research on alternative institutions designed to do the same task. This study inquires about forms of parimutuel betting systems. Measures of information aggregation for performance evaluation are introduced. Two environments are studied. The first poses a simpler aggregation problem than does the second. Information aggregation can be detected under both environments but the degree depends on the choice of baselines. The competitive equilibrium rational expectations model is clearly the best model in the simpler environment but, in the more complex environment, models based on private information alone are more accurate. Bluffing and waiting inhibit aggregation and time and experience are conjectured to lead to more rational expectations-like performance. Copyright Springer-Verlag Berlin Heidelberg 2003

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File URL: http://hdl.handle.net/10.1007/s00199-002-0306-7
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Publisher Info
Article provided by Springer in its journal Economic Theory.

Volume (Year): 22 (2003)
Issue (Month): 2 (09)
Pages: 311-351
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Handle: RePEc:spr:joecth:v:22:y:2003:i:2:p:311-351

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Related research
Keywords: Keywords and Phrases:General: laboratory; Individual and group behavior; Information and uncertainty; Asymmetric and private Information.; JEL Classification Numbers:C90; C91; C92; D8; D40; D82.;

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  1. Jason Shachat & Anthony Westerling, 2004. "Information Aggregation in a Catastrophe Futures Markets," Experimental 0403002, EconWPA. [Downloadable!]
    Other versions:
  2. Marco Ottaviani & Peter Norman Sørensen, 2003. "Late Informed Betting and the Favorite-Longshot Bias," Discussion Papers 03-33, University of Copenhagen. Department of Economics. [Downloadable!]
    Other versions:
  3. Martin Barner & Francesco Feri & Charles R. Plott, 2005. "On the microstructure of price determination and information aggregation with sequential and asymmetric information arrival in an experimental asset market," Annals of Finance, Springer, vol. 1(1), pages 73-107, 01. [Downloadable!] (restricted)
  4. Frederic Koessler & Charles Noussair & Anthony Ziegelmeyer, 2007. "Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets," Jena Economic Research Papers in Economics 2007-033, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek. [Downloadable!]
    Other versions:
  5. Steven Gjerstad, 2004. "Risk Aversion, Beliefs, and Prediction Market Equilibrium," Microeconomics 0411002, EconWPA. [Downloadable!]
  6. Frederic Koessler & Ch. Noussair & A. Ziegelmeyer, 2005. "Individual Behavior and Beliefs in Experimental Parimutuel Betting Markets," THEMA Working Papers 2005-08, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  7. Mathias Drehmann & Joerg Oechssler & Andreas Roider, 2003. "Herding and Contrarian Behavior in Financial Markets: An Internet Experiment," University of California at Santa Barbara, Economics Working Paper Series 18-03, Department of Economics, UC Santa Barbara. [Downloadable!]
    Other versions:
  8. Barner, Martin & Feri, Francesco & Plott, Charles, 2004. "On the Microstructure of Price Determination and Information Aggregation with Sequential and Asymmetric Information Arrival in an Experimental Asset Market," Working Papers 1204, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  9. Frederic Koessler & Charles Noussair & Anthony Ziegelmeyer, 2006. "Parimutuel Betting under Asymmetric Information," Papers on Strategic Interaction 2006-05, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
    Other versions:
  10. Roust, Kevin A. & Plott, Charles R., 2005. "The design and testing of information aggregation mechanisms: A Two-stage parimutuel IAM," Working Papers 1245, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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