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The design of improved parimutuel-type information aggregation mechanisms: Inaccuracies and the long-shot bias as disequilibrium phenomena

  • Axelrod, Boris S.
  • Kulick, Ben J.
  • Plott, Charles R.
  • Roust, Kevin A.

Information aggregation mechanisms (IAMs) based on parimutuel-type betting systems can aggregate information from complex environments. However, the performance of previously studied systems is imperfect due to possible bluffing, strategic timing of decisions, and "long-shot bias". This paper demonstrates two modifications of parimutuel systems that improve information aggregation performance by removing disinformation due to strategic behavior and by removing misleading disequilibrium behavior. These experiments also demonstrate that "long-shot bias" results from disequilibrium behavior as opposed to being inherent in the psychology of the individuals.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 69 (2009)
Issue (Month): 2 (February)
Pages: 170-181

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Handle: RePEc:eee:jeborg:v:69:y:2009:i:2:p:170-181
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  2. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  3. Plott, Charles R & Sunder, Shyam, 1988. "Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets," Econometrica, Econometric Society, vol. 56(5), pages 1085-1118, September.
  4. 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.
  5. Plott, Charles R & Sunder, Shyam, 1982. "Efficiency of Experimental Security Markets with Insider Information: An Application of Rational-Expectations Models," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 663-98, August.
  6. Colin F. Camerer, 1998. "Can Asset Markets Be Manipulated? A Field Experiment with Racetrack Betting," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 457-482, June.
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