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Inconsistent Incomplete Information: A Betting Experiment

Author

Listed:
  • Werner Güth

    () (Max Planck Institute Jena, Strategic Interaction Group)

  • Loreto Llorente Erviti

    () (Universidad Publica de Navarra, Pamplona)

  • Anthony Ziegelmeyer

    () (Max Planck Institute Jena, Strategic Interaction Group)

Abstract

We study two person-betting games with inconsistent commonly know beliefs, using an experimental approach. In our experimental games, participants bet against one another, each bettor choosing one of two possible outcomes, and payoff odds are know at the time bets are placed. Bettors' beliefs are always commonly known. Participants play a series of betting games, in some of which the occurrence probabilities of the two outcomes differ between bettors (inconsistent beliefs) while in others the same occurrence probabilities prevail for both bettors (consistent beliefs). In the betting games with consistent commonly know beliefs, we observe that participants refrain from betting. In the betting games with inconsistent commonly know beliefs, we observe significant betting rates and the larger the discrepancy between the two bettors' subjective expectations the larger the volume of bets. Our experimental results contrast with the existing evidence on zero-sum betting games according to which participants' irrational inclination to bet is difficult to eliminate.

Suggested Citation

  • Werner Güth & Loreto Llorente Erviti & Anthony Ziegelmeyer, 2009. "Inconsistent Incomplete Information: A Betting Experiment," Jena Economic Research Papers 2009-043, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2009-043
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    File URL: http://zs.thulb.uni-jena.de/receive/jportal_jparticle_00150466
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    Keywords

    Betting; Common prior; Harsanyi consistency; Experimental Economics.;

    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
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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