IDEAS home Printed from https://ideas.repec.org/a/spr/grdene/v28y2019i4d10.1007_s10726-019-09622-9.html
   My bibliography  Save this article

Moderators for Partition Dependence in Prediction Markets

Author

Listed:
  • Simon Kloker

    (Karlsruhe Institute of Technology (KIT))

  • Tim Straub

    (FZI Forschungszentrum Informatik)

  • Christof Weinhardt

    (Karlsruhe Institute of Technology (KIT))

Abstract

Every investment decision by organizations is an implicit expression of a prediction on the future state of companies, demand trends, future challenges, or politics. Usually, decision makers can chose between different options to invest and also tend to diversify investments in order to reduce risk. Research on cognitive processing, however, showed that unconscious heuristics triggered by “heuristic cues” influence such decisions in an irrational manner. Partition dependence, the partition of the state space, is such a heuristic cue that leads to an irrational bias in the assessment of probabilities towards a uniform distribution. This work demonstrates that this bias is also persistent in group-based forecasting. We explain and predict the occurrence of the partition dependence bias by applying the Dual-Process Theory of cognitive processing. The results of our three consecutive experiments suggest that besides task complexity, individual expertise, and motivation are moderators for the occurrence of partition dependence. We contribute to the research of biases in forecasting by applying approaches of the Dual-process Theories to explain the occurrence of partition dependence for the first time and shed light on future pathways in this research field.

Suggested Citation

  • Simon Kloker & Tim Straub & Christof Weinhardt, 2019. "Moderators for Partition Dependence in Prediction Markets," Group Decision and Negotiation, Springer, vol. 28(4), pages 723-756, August.
    • Handle: RePEc:spr:grdene:v:28:y:2019:i:4:d:10.1007_s10726-019-09622-9
    DOI: 10.1007/s10726-019-09622-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10726-019-09622-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10726-019-09622-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Alain Samson & Benjamin G. Voyer, 2012. "Two minds, three ways: dual system and dual process models in consumer psychology," AMS Review, Springer;Academy of Marketing Science, vol. 2(2), pages 48-71, December.
    2. Craig R. Fox & Robert T. Clemen, 2005. "Subjective Probability Assessment in Decision Analysis: Partition Dependence and Bias Toward the Ignorance Prior," Management Science, INFORMS, vol. 51(9), pages 1417-1432, September.
    3. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Jürgen Schupp & Gert G. Wagner, 2011. "Individual Risk Attitudes: Measurement, Determinants, And Behavioral Consequences," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 522-550, June.
    4. Sebastien Pouget & Julien Sauvagnat & Stephane Villeneuve, 2017. "A Mind Is a Terrible Thing to Change: Confirmatory Bias in Financial Markets," The Review of Financial Studies, Society for Financial Studies, vol. 30(6), pages 2066-2109.
    5. Michael Cipriano & Thomas S Gruca, 2014. "The power of priors: How confirmation bias impacts market prices," Journal of Prediction Markets, University of Buckingham Press, vol. 8(3), pages 34-56.
    6. Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Long Shot Bias: Is it Risk-Love or Misperceptions?," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 723-746, August.
    7. Meub, Lukas & Proeger, Till, 2016. "Can anchoring explain biased forecasts? Experimental evidence," Journal of Behavioral and Experimental Finance, Elsevier, vol. 12(C), pages 1-13.
    8. Dominik Jung & Verena Dorner, 2018. "Decision Inertia and Arousal: Using NeuroIS to Analyze Bio-Physiological Correlates of Decision Inertia in a Dual-Choice Paradigm," Lecture Notes in Information Systems and Organization, in: Fred D. Davis & René Riedl & Jan vom Brocke & Pierre-Majorique Léger & Adriane B. Randolph (ed.), Information Systems and Neuroscience, pages 159-166, Springer.
    9. Watts, Stephanie, 2015. "Application of Dual-process Theory to Information Systems: Current and Future Research Directions," Foundations and Trends(R) in Information Systems, now publishers, vol. 1(2), pages 69-162, October.
    10. Linda M. Woodland & Bill M. Woodland, 2011. "The Reverse Favorite-Longshot Bias in the National Hockey League: Do Bettors Still Score on Longshots?," Journal of Sports Economics, , vol. 12(1), pages 106-117, February.
    11. Brian Spears & Christina LaComb & John Interrante & Janet Barnett & Deniz Senturk-Dogonaksoy, 2009. "Examining Trader Behavior in Idea Markets: An Implementation of GE's Imagination Markets," Journal of Prediction Markets, University of Buckingham Press, vol. 3(1), pages 17-39, April.
    12. Campbell, Sean D. & Sharpe, Steven A., 2009. "Anchoring Bias in Consensus Forecasts and Its Effect on Market Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 44(2), pages 369-390, April.
    13. Restocchi, Valerio & McGroarty, Frank & Gerding, Enrico & Johnson, Johnnie E.V., 2018. "It takes all sorts: A heterogeneous agent explanation for prediction market mispricing," European Journal of Operational Research, Elsevier, vol. 270(2), pages 556-569.
    14. Lionel Page, 2012. "‘It ain’t over till it's over.’ Yogi Berra bias on prediction markets," Applied Economics, Taylor & Francis Journals, vol. 44(1), pages 81-92, January.
    15. Craig R. Fox & David Bardolet & Daniel Lieb, 2005. "Partition Dependence in Decision Analysis, Resource Allocation, and Consumer Choice," Springer Books, in: Rami Zwick & Amnon Rapoport (ed.), Experimental Business Research, chapter 0, pages 229-251, Springer.
    16. Andrew Speirs‐Bridge & Fiona Fidler & Marissa McBride & Louisa Flander & Geoff Cumming & Mark Burgman, 2010. "Reducing Overconfidence in the Interval Judgments of Experts," Risk Analysis, John Wiley & Sons, vol. 30(3), pages 512-523, March.
    17. Winkler, Jens & Moser, Roger, 2016. "Biases in future-oriented Delphi studies: A cognitive perspective," Technological Forecasting and Social Change, Elsevier, vol. 105(C), pages 63-76.
    18. Samson, Alain & Voyer, Benjamin G., 2012. "Two minds, three ways: dual system and dual process models in consumer psychology," LSE Research Online Documents on Economics 47252, London School of Economics and Political Science, LSE Library.
    19. repec:cup:judgdm:v:13:y:2018:i:2:p:202-211 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bonaccorsi, Andrea & Apreda, Riccardo & Fantoni, Gualtiero, 2020. "Expert biases in technology foresight. Why they are a problem and how to mitigate them," Technological Forecasting and Social Change, Elsevier, vol. 151(C).
    2. Bergemann, Dirk & Ottaviani, Marco, 2021. "Information Markets and Nonmarkets," CEPR Discussion Papers 16459, C.E.P.R. Discussion Papers.
    3. Eisenbeiss, Maik & Wilken, Robert & Skiera, Bernd & Cornelissen, Markus, 2015. "What makes deal-of-the-day promotions really effective? The interplay of discount and time constraint with product type," International Journal of Research in Marketing, Elsevier, vol. 32(4), pages 387-397.
    4. Snowberg, Erik & Wolfers, Justin & Zitzewitz, Eric, 2013. "Prediction Markets for Economic Forecasting," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 657-687, Elsevier.
    5. Lukas Meub & Till Proeger, 2018. "Are groups ‘less behavioral’? The case of anchoring," Theory and Decision, Springer, vol. 85(2), pages 117-150, August.
    6. Eric Johnson & Suzanne Shu & Benedict Dellaert & Craig Fox & Daniel Goldstein & Gerald Häubl & Richard Larrick & John Payne & Ellen Peters & David Schkade & Brian Wansink & Elke Weber, 2012. "Beyond nudges: Tools of a choice architecture," Marketing Letters, Springer, vol. 23(2), pages 487-504, June.
    7. Pierre‐André Chiappori & Bernard Salanié & François Salanié & Amit Gandhi, 2019. "From Aggregate Betting Data to Individual Risk Preferences," Econometrica, Econometric Society, vol. 87(1), pages 1-36, January.
    8. Koivuranta, Matti & Korhonen, Marko, 2021. "Changes in risk preferences: Evidence from Swedish harness horse racing data," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 16-32.
    9. Jebarajakirthy, Charles & Das, Manish & Shah, Dhara & Shankar, Amit, 2021. "Deciphering in-store-online switching in multi-channel retailing context: Role of affective commitment to purchase situation," Journal of Retailing and Consumer Services, Elsevier, vol. 63(C).
    10. Capelli, Sonia & Thomas, Fanny, 2021. "To look tasty, let's show the ingredients! Effects of ingredient images on implicit tasty–healthy associations for packaged products," Journal of Retailing and Consumer Services, Elsevier, vol. 61(C).
    11. Panzone, Luca & Hilton, Denis & Sale, Laura & Cohen, Doron, 2016. "Socio-demographics, implicit attitudes, explicit attitudes, and sustainable consumption in supermarket shopping," Journal of Economic Psychology, Elsevier, vol. 55(C), pages 77-95.
    12. Erlandsson, Arvid & Västfjäll, Daniel & Sundfelt, Oskar & Slovic, Paul, 2016. "Argument-inconsistency in charity appeals: Statistical information about the scope of the problem decrease helping toward a single identified victim but not helping toward many non-identified victims ," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 126-140.
    13. Janotta, Frederica & Hogreve, Jens, 2024. "Ready for take-off? The dual role of affective and cognitive evaluations in the adoption of Urban Air Mobility services," Transportation Research Part A: Policy and Practice, Elsevier, vol. 185(C).
    14. Liu, Yanfeng & Cai, Lanhui & Ma, Fei & Wang, Xueqin, 2023. "Revenge buying after the lockdown: Based on the SOR framework and TPB model," Journal of Retailing and Consumer Services, Elsevier, vol. 72(C).
    15. Daniel J. Benjamin, 2018. "Errors in Probabilistic Reasoning and Judgment Biases," NBER Working Papers 25200, National Bureau of Economic Research, Inc.
    16. Samson, Alain & Voyer, Benjamin G., 2014. "Emergency purchasing situations: Implications for consumer decision-making," Journal of Economic Psychology, Elsevier, vol. 44(C), pages 21-33.
    17. Richetin, Juliette & Mattavelli, Simone & Perugini, Marco, 2016. "Increasing implicit and explicit attitudes toward an organic food brand by referencing to oneself," Journal of Economic Psychology, Elsevier, vol. 55(C), pages 96-108.
    18. Linda M. Woodland & Bill M. Woodland, 2015. "The National Football League season wins total betting market: The impact of heuristics on behavior," Southern Economic Journal, John Wiley & Sons, vol. 82(1), pages 38-54, July.
    19. Berkowitz, Jason P. & Depken, Craig A. & Gandar, John M., 2017. "A favorite-longshot bias in fixed-odds betting markets: Evidence from college basketball and college football," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 233-239.
    20. Marion Garaus, 2020. "The influence of media multitasking on advertising effectiveness," AMS Review, Springer;Academy of Marketing Science, vol. 10(3), pages 244-259, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:grdene:v:28:y:2019:i:4:d:10.1007_s10726-019-09622-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.