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Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets

Author Info

  • Frederic Koessler

    ()

    (THEMA (CNRS), Universite de Cergy-Pontoise)

  • Charles Noussair

    ()

    (Department of Economics, Faculty of Economics and Business Administration, Tilburg University)

  • Anthony Ziegelmeyer

    ()

    (Max Planck Institute of Economics, Strategic Interaction Group)

Abstract

We study sequential parimutuel betting markets with asymmetrically informed bettors, using an experimental approach. In one treatment, groups of eight participants play twenty repetitions of a sequential betting game. The second treatment is identical, except that bettors are observed by other participants who assess the winning probabilities of each potential outcome. In the third treatment, the same individuals make bets and assess the winning probabilities of the outcomes. A favorite-longshot bias is observed in the ï¬rst and second treatments, but does not exist in the third treatment. Information aggregation is better in the third than in the other two treatments, and contrarian betting is almost completely eliminated by the belief elicitation procedure. Making bets improves the accuracy of stated beliefs. We propose a theoretical model, the Adaptive Model, to describe individual behavior and we ï¬nd that it effectively explains betting decisions, especially in the third treatment.

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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2007-033.

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Date of creation: 06 Jul 2007
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Handle: RePEc:jrp:jrpwrp:2007-033
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Keywords: Parimutuel betting; Information aggregation; Elicited beliefs; Experimental economics;

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Find related papers by JEL classification:
  • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
  • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
  • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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Cited by:

  1. Koessler, Frédéric & Noussair, Charles & Ziegelmeyer, Anthony, 2008. "Parimutuel betting under asymmetric information," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 733-744, July.
  2. Jianying Qiu, 2009. "Loss aversion and mental accounting: The favorite-longshot bias in parimutuel betting," Working Papers 2009-15, Faculty of Economics and Statistics, University of Innsbruck.

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