Understanding the Plott-Wit-Yang Paradox
Plott, Wit & Yang (2003) conduct a betting market experiment and find: First, information was aggregated. This suggests that traders updated their private information based on observed market odds. Second, a model based only on the use of private information seems to fit their data best. The authors call this paradoxical. Because the original data are lost, we replicate their experiment. Our results suggest that the paradox seems due to aggregate rather than individual level data analysis. We analyze the individual level data and explain the paradoxical results reported in Plott et al. (2003).
Volume (Year): 3 (2009)
Issue (Month): 3 (December)
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Manski, Charles F., 2006.
"Interpreting the predictions of prediction markets,"
Elsevier, vol. 91(3), pages 425-429, June.
- Charles F. Manski, 2004. "Interpreting the Predictions of Prediction Markets," NBER Working Papers 10359, National Bureau of Economic Research, Inc.
- Charles R. Plott & Jorgen Wit & Winston C. Yang, 2003.
"Parimutuel betting markets as information aggregation devices: experimental results,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 22(2), pages 311-351, 09.
- Plott, Charles R. & Wit, J. & Yang, W. C., 1997. "Parimutuel Betting Markets as Information Aggregation Devises: Experimental Results," Working Papers 986, California Institute of Technology, Division of the Humanities and Social Sciences.
- Glenn W. Harrison & Eric Johnson & Melayne M. McInnes & E. Elisabet Rutström, 2005. "Risk Aversion and Incentive Effects: Comment," American Economic Review, American Economic Association, vol. 95(3), pages 897-901, June.
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
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