Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets

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.
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Submitted on : Tuesday, November 20, 2012 - 9:56:20 AM
Last modification on : Friday, October 26, 2018 - 1:28:02 PM

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Frédéric Koessler, Charles Noussair, Anthony Ziegelmeyer. Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets. Journal of Economic Behavior and Organization, Elsevier, 2012, 83 (2), pp.195-208. ⟨10.1016/j.jebo.2012.02.017⟩. ⟨halshs-00754582⟩

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