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Aggregation of information and beliefs on prediction markets with non-bayesian traders

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  • Matthieu Segol

    (UP1 UFR02 - Université Paris 1, Panthéon-Sorbonne - UFR d'Économie - Université Paris I - Panthéon-Sorbonne - PRES HESAM)

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    Abstract

    Prediction markets are specific financial markets designed to produce forecasts of future events, such as political election outcomes or economic policy decisions. Empirical studies have exhibited over the years the significant accuracy of these anticipations, which tends to give credit to the efficicent market hypothesis advocated by the literature. However the latter relies theoretically on rational behaviors, in sharp contrast with traders' actions observed on most prediction markets. Indeed, an important fraction of participants are subject to several judgement bias. Based on Ottaviani and Sorensen's (2010) approach, we develop a framework that allows to introduce these biased traders and to study the consequences on the equilibrium properties.

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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number dumas-00809694.

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    Date of creation: 2012
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    Handle: RePEc:hal:journl:dumas-00809694

    Note: View the original document on HAL open archive server: http://dumas.ccsd.cnrs.fr/dumas-00809694
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    Keywords: marché financier;

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    1. Larry G. Epstein & Jawwad Noor & Alvaro Sandroni, 2005. "Non-Bayesian Updating: A Theoretical Framework," Boston University - Department of Economics - Working Papers Series WP2005-025, Boston University - Department of Economics.
    2. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
    3. Manski, Charles F., 2006. "Interpreting the predictions of prediction markets," Economics Letters, Elsevier, vol. 91(3), pages 425-429, June.
    4. Ali, Mukhtar M, 1977. "Probability and Utility Estimates for Racetrack Bettors," Journal of Political Economy, University of Chicago Press, vol. 85(4), pages 803-15, August.
    5. Sanford Grossman, 1989. "The Informational Role of Prices," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572141, December.
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