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Sequential Parimutuel Games

  • Feeney, R.
  • King, S.P.

In a parimutuel betting system, a successful player's return depends on the number of players who choose the same action. This paper examines a general solution for two-action sequential parimutuel games, and shows how the (unique) equilibrium of such games leads to a simple pattern of behaviour. In particular, we show that there is an advantage to being an early mover, that early players might choose actions with an ex ante low probability of success, and that player action choices can 'flip' with small changes in the parameters of the game.

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File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-00-01/736.pdf
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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 736.

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Length: 12 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:mlb:wpaper:736
Contact details of provider: Postal:
Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia

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Web page: http://fbe.unimelb.edu.au/economics
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  1. Takahiro, Watanabe, 1997. "A parimutuel system with two horses and a continuum of bettors," Journal of Mathematical Economics, Elsevier, vol. 28(1), pages 85-100, August.
  2. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  3. Watanabe, Takahiro & Nonoyama, Hideyuki & Mori, Masao, 1994. "A Model of a General Parimutuel System: Characterizations and Equilibrium Selection," International Journal of Game Theory, Springer;Game Theory Society, vol. 23(3), pages 237-60.
  4. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  5. Potters, J.J.M. & Wit, J., 1996. "Bets and Bids : Favorite-Longshot Bias and Winner's Curse," Discussion Paper 1996-04, Tilburg University, Center for Economic Research.
  6. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
  7. Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
  8. 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.
  9. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
  10. Asch, Peter & Malkiel, Burton G. & Quandt, Richard E., 1982. "Racetrack betting and informed behavior," Journal of Financial Economics, Elsevier, vol. 10(2), pages 187-194, July.
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