Partition-Dependent Framing Effects in Lab and Field Prediction Markets
A later version of this working paper has been published under the title: "How psychological framing affects economic market prices in the lab and field" in Proceedings of the National Academy of Sciences (PNAS) - published ahead of print July 1, 2013 doi:10.1073/pnas.1206326110
67 Pages Posted: 3 Mar 2008 Last revised: 15 Sep 2013
Date Written: February 28, 2008
Abstract
Many psychology experiments show that individually judged probabilities of the same event can vary depending on the partition of the state space (a framing effect called partition-dependence). We show that these biases transfer to competitive prediction markets in which multiple informed traders are provided economic incentives to bet on their beliefs about events. We report results of a short controlled lab study, a longer field experiment (betting on the NBA playoffs and the FIFA World Cup), and naturally-occurring trading in macro-economic derivatives. The combined evidence suggests that partition-dependence can exist and persist in lab and field prediction markets.
Keywords: prediction markets, framing efforts
JEL Classification: D8, G1
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
By Justin Wolfers and Eric Zitzewitz
-
By Justin Wolfers and Eric Zitzewitz
-
What Do Financial Markets Think of War in Iraq?
By Andrew Leigh, Justin Wolfers, ...
-
What Do Financial Markets Think of War in Iraq?
By Andrew Leigh, Justin Wolfers, ...
-
Interpreting Prediction Market Prices as Probabilities
By Justin Wolfers and Eric Zitzewitz
-
Interpreting Prediction Market Prices as Probabilities
By Justin Wolfers and Eric Zitzewitz
-
Interpreting Prediction Market Prices as Probabilities
By Justin Wolfers and Eric Zitzewitz
-
Did Steve Forbes Scare the Municipal Bond Market?
By Joel B. Slemrod and Timothy Greimel
-
Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections
By Erik C. Snowberg, Justin Wolfers, ...