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Parimutuel Betting under Asymmetric Information

Listed author(s):
  • Frederic Koessler
  • Charles Noussair
  • Anthony Ziegelmeyer

    ()

This paper examines simple parimutuel betting games under asymmetric information, with particular attention to differences between markets in which bets are submitted simultaneously versus sequentially. In the simultaneous parimutuel betting market, all (symmetric and asymmetric) Bayesian-Nash equilibria are generically characterized as a function of the number of bettors and the quality of their private information. There always exists a separating equilibrium, in which all bettors follow their private signals. This equilibrium is unique if the number of bettors is sufficiently large. In the sequential framework, earlier bets have information externalities, because they may reveal private information of bettors. They also have payoff externalities, because they affect the betting odds. One effect of these externalities is that the separating equilibrium disappears if the number of betting periods is sufficiently large.

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File URL: ftp://papers.econ.mpg.de/esi/discussionpapers/2006-05.pdf
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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2006-05.

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Length: 18 pages
Date of creation: Mar 2006
Handle: RePEc:esi:discus:2006-05
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