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State-dependent Preferences in Prediction Markets and Prices as Aggregate Statistic

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  • Urmee Khan

Abstract

If traders in prediction markets have state-dependent preferences so that marginal utility of money varies across states, prices in a rational expectation equilibrium are quantile statistics of distributions that derive from both distribution of realized signals and the distribution of state-dependence parameters. As a result, even with a common prior and regardless of whether prices reveal realized signals fully or not, the interpretation of prices as posterior probabilities remains problematic.

Suggested Citation

  • Urmee Khan, 2016. "State-dependent Preferences in Prediction Markets and Prices as Aggregate Statistic," Studies in Microeconomics, , vol. 4(1), pages 70-77, June.
    • Handle: RePEc:sae:miceco:v:4:y:2016:i:1:p:70-77
    DOI: 10.1177/2321022216649826
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    References listed on IDEAS

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