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Sequential Parimutuel Games

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  • Feeney, R.
  • King, S.P.

Abstract

In a parimutuel betting system, a successful player's return depends on the number of players who choose the same action. This paper examines a general solution for two-action sequential parimutuel games, and shows how the (unique) equilibrium of such games leads to a simple pattern of behaviour. In particular, we show that there is an advantage to being an early mover, that early players might choose actions with an ex ante low probability of success, and that player action choices can 'flip' with small changes in the parameters of the game.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 736.

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Length: 12 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:mlb:wpaper:736

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Keywords: GAME THEORY ; INVESTMENTS;

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References

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  1. Potters, J.J.M. & Wit, J., 1996. "Bets and Bids: Favorite-Longshot Bias and Winner's Curse," Discussion Paper 1996-04, Tilburg University, Center for Economic Research.
  2. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  3. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
  4. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  5. Takahiro, Watanabe, 1997. "A parimutuel system with two horses and a continuum of bettors," Journal of Mathematical Economics, Elsevier, vol. 28(1), pages 85-100, August.
  6. Watanabe, Takahiro & Nonoyama, Hideyuki & Mori, Masao, 1994. "A Model of a General Parimutuel System: Characterizations and Equilibrium Selection," International Journal of Game Theory, Springer, vol. 23(3), pages 237-60.
  7. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  8. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
  9. Asch, Peter & Malkiel, Burton G. & Quandt, Richard E., 1982. "Racetrack betting and informed behavior," Journal of Financial Economics, Elsevier, vol. 10(2), pages 187-194, July.
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Cited by:
  1. Ottaviani, Marco & Sorensen, Peter Norman, 2003. "Late Informed Betting and the Favourite-Longshot Bias," CEPR Discussion Papers 4092, C.E.P.R. Discussion Papers.
  2. Frédéric KOESSLER & Anthony ZIEGELMEYER, 2002. "Parimutuel Betting under Asymmetric Information," Working Papers of BETA 2002-17, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  3. Frédéric Koessler & Anthony Ziegelmeyer & Marie-Hélène Broihanne, 2003. "The Favorite-Longshot Bias in Sequential Parimutuel Betting with Non-Expected Utility Players," Theory and Decision, Springer, vol. 54(3), pages 231-248, May.

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