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Parimutuel betting markets as information aggregation devices: experimental results

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  • Charles R. Plott
  • Jorgen Wit
  • Winston C. Yang
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    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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    Bibliographic 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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    Cited by:
    1. Németh, András, 2005. "Hírpiacok szimulációja
      [Simulation of news markets]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 249-274.
    2. 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.
    3. Koessler, Frédéric & Noussair, Charles & Ziegelmeyer, Anthony, 2012. "Information aggregation and belief elicitation in experimental parimutuel betting markets," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 195-208.
    4. Mathias Drehmann & Joerg Oechssler & Andreas Roider, 2002. "Herding and Contrarian Behavior in Financial Markets - An Internet Experiment," Finance 0210005, EconWPA.
    5. Katarina Kalovcova & Andreas Ortmann, 2009. "Understanding the Plott-Wit-Yang Paradox," CERGE-EI Working Papers wp397, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    6. Jason Shachat & Anthony Westerling, 2006. "Information aggregation in a catastrophe futures market," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(6), pages 477-495.
    7. 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.
    8. 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.
    9. McKenzie, Jordi, 2013. "Predicting box office with and without markets: Do internet users know anything?," Information Economics and Policy, Elsevier, vol. 25(2), pages 70-80.
    10. Frédéric Koessler & Charles Noussair & Anthony Ziegelmeyer, 2007. "Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets," Papers on Strategic Interaction 2005-12, Max Planck Institute of Economics, Strategic Interaction Group.
    11. Axelrod, Boris S. & Kulick, Ben J. & Plott, Charles R. & Roust, Kevin A., 2009. "The design of improved parimutuel-type information aggregation mechanisms: Inaccuracies and the long-shot bias as disequilibrium phenomena," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 170-181, February.
    12. Steven Gjerstad, 2004. "Risk Aversion, Beliefs, and Prediction Market Equilibrium," Microeconomics 0411002, EconWPA.

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