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Pari-Mutuel Information Aggregation Mechanisms with Public Knowledge

  • Jared Bullen
  • Jordi McKenzie

A number of experimental studies have found that pari-mutuel markets possess the ability to aggregate information privately held by individuals and therefore act as prediction markets. However, all previous studies have assumed that information is privately and independently distributed. In real world environments the distribution of information is unlikely to take this form. This paper investigates, experimentally, an information structure in which there is both private and public information. It is found that this structure induces a 'public knowledge bias' which limits the market's ability to aggregate information to the extent that the public information reduces the market's predictive performance.

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Article provided by University of Buckingham Press in its journal Journal of Prediction Markets.

Volume (Year): 4 (2010)
Issue (Month): 2 (September)
Pages: 23-43

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Handle: RePEc:buc:jpredm:v:4:y:2010:i:2:p:23-43
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