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The design of improved parimutuel-type information aggregation mechanisms: Inaccuracies and the long-shot bias as disequilibrium phenomena

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  • Axelrod, Boris S.
  • Kulick, Ben J.
  • Plott, Charles R.
  • Roust, Kevin A.

Abstract

Information aggregation mechanisms (IAMs) based on parimutuel-type betting systems can aggregate information from complex environments. However, the performance of previously studied systems is imperfect due to possible bluffing, strategic timing of decisions, and "long-shot bias". This paper demonstrates two modifications of parimutuel systems that improve information aggregation performance by removing disinformation due to strategic behavior and by removing misleading disequilibrium behavior. These experiments also demonstrate that "long-shot bias" results from disequilibrium behavior as opposed to being inherent in the psychology of the individuals.

Suggested Citation

  • Axelrod, Boris S. & Kulick, Ben J. & Plott, Charles R. & Roust, Kevin A., 2009. "The design of improved parimutuel-type information aggregation mechanisms: Inaccuracies and the long-shot bias as disequilibrium phenomena," Journal of Economic Behavior & Organization, Elsevier, vol. 69(2), pages 170-181, February.
    • Handle: RePEc:eee:jeborg:v:69:y:2009:i:2:p:170-181
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    Cited by:

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    2. McKenzie, Jordi, 2013. "Predicting box office with and without markets: Do internet users know anything?," Information Economics and Policy, Elsevier, vol. 25(2), pages 70-80.
    3. Johan Almenberg & Ken Kittlitz & Thomas Pfeiffer, 2009. "An Experiment on Prediction Markets in Science," PLOS ONE, Public Library of Science, vol. 4(12), pages 1-7, December.
    4. Haikady N Nagaraja & Shane Sanders, 2020. "The aggregation paradox for statistical rankings and nonparametric tests," PLOS ONE, Public Library of Science, vol. 15(3), pages 1-21, March.
    5. Charles N. Noussair & Steven Tucker, 2013. "Experimental Research On Asset Pricing," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 554-569, July.
    6. Kajii, Atsushi & Watanabe, Takahiro, 2017. "Favorite–longshot bias in pari-mutuel betting: An evolutionary explanation," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 56-69.
    7. Hu, Tai-Wei & Wallace, Neil, 2016. "Information aggregation in a large multi-stage market game," Journal of Economic Theory, Elsevier, vol. 161(C), pages 103-144.
    8. David Court & Benjamin Gillen & Jordi McKenzie & Charles R. Plott, 2018. "Two information aggregation mechanisms for predicting the opening weekend box office revenues of films: Boxoffice Prophecy and Guess of Guesses," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(1), pages 25-54, January.

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