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Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets

Author

Listed:
  • Frédéric Koessler

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Charles Noussair

    (Department of Economics - Tilburg University [Netherlands])

  • Anthony Ziegelmeyer

    (Queen's University Management School - QUB - Queen's University [Belfast])

Abstract

This paper studies the impact of belief elicitation on informational efficiency and individual behavior in experimental parimutuel betting markets. In one treatment, groups of eight participants, who possess a private signal about the eventual outcome, play a sequential betting game. The second treatment is identical, except that bettors are observed by eight other participants who submit incentivized beliefs about the winning probabilities of each outcome. In the third treatment, the same individuals make bets and assess the winning probabilities of the outcomes. Market probabilities more accurately reflect objective probabilities in the third than in the other two treatments. Submitting beliefs reduces the favorite-longshot bias and making bets improves the accuracy of elicited beliefs. A level-k framework provides some insights about why belief elicitation improves the capacity of betting markets to aggregate information.

Suggested Citation

  • Frédéric Koessler & Charles Noussair & Anthony Ziegelmeyer, 2012. "Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets," Post-Print halshs-00754582, HAL.
    • Handle: RePEc:hal:journl:halshs-00754582
    DOI: 10.1016/j.jebo.2012.02.017
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    References listed on IDEAS

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    Cited by:

    1. Koessler, Frédéric & Noussair, Charles & Ziegelmeyer, Anthony, 2008. "Parimutuel betting under asymmetric information," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 733-744, July.
    2. Jianying Qiu, 2007. "Loss aversion and mental accounting: the favorite longshot bias in parimutuel betting," Jena Economics Research Papers 2007-017, Friedrich-Schiller-University Jena.

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    More about this item

    Keywords

    Parimutuel betting; Information aggregation; Favorite-longshot bias; Elicited beliefs; Level-k reasoning; Experiment;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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