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From Aggregate Betting Data to Individual Risk Preferences

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Listed author(s):
  • Chiappori, Pierre-André
  • Gandhi, Amit
  • Salanié, Bernard
  • Salanié, François

Abstract

As a textbook model of contingent markets, horse races are an attractive environment to study the attitudes towards risk of bettors. We innovate on the literature by explicitly considering heterogeneous bettors and allowing for very general risk preferences, including non-expected utility. We build on a standard single-crossing condition on preferences to derive testable implications; and we show how parimutuel data allow us to uniquely identify the distribution of preferences among the population of bettors. We then estimate the model on data from US races. Within the expected utility class, the most usual specifications (CARA and CRRA) fit the data very badly. Our results show evidence for both heterogeneity and nonlinear probability weighting.

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File URL: http://www.tse-fr.eu/sites/default/files/medias/doc/wp/env/wp_tse_453.pdf
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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 13-453.

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Date of creation: Oct 2012
Handle: RePEc:tse:wpaper:27789
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Cited by:

  1. Nikhil Agarwal & Paulo Somaini, 2014. "Demand Analysis using Strategic Reports: An application to a school choice mechanism," NBER Working Papers 20775, National Bureau of Economic Research, Inc.
  2. Kircher, Philipp & Marzilli Ericson, Keith & Spinnewijn, Johannes & Starc, Amanda, 2015. "Inferring Risk Perceptions and Preferences using Choice from Insurance Menus: Theory and Evidence," CEPR Discussion Papers 10981, C.E.P.R. Discussion Papers.
  3. Tyler Abbot, 2017. "Heterogeneous Preferences, Constraints, and the Cyclicality of Leverage," Papers 1706.05877, arXiv.org.

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