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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

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

Suggested Citation

  • Charles R. Plott & Jorgen Wit & Winston C. Yang, 2003. "Parimutuel betting markets as information aggregation devices: experimental results," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(2), pages 311-351, September.
    • Handle: RePEc:spr:joecth:v:22:y:2003:i:2:p:311-351
    DOI: 10.1007/s00199-002-0306-7
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