Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets

30 Pages Posted: 18 Oct 2007

See all articles by Frédéric Koessler

Frédéric Koessler

University of Cergy-Pontoise - THEMA

Charles N. Noussair

Tilburg University

Anthony Ziegelmeyer

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics; Queen's University Belfast - Queen's Management School

Date Written: July 6, 2007

Abstract

We study sequential parimutuel betting markets with asymmetrically informed bettors, using an experimental approach. In one treatment, groups of eight participants play twenty repetitions of a sequential betting game. The second treatment is identical, except that bettors are observed by other participants who assess the winning probabilities of each potential outcome. In the third treatment, the same individuals make bets and assess the winning probabilities of the outcomes. A favorite-longshot bias is observed in the first and second treatments, but does not exist in the third treatment. Information aggregation is better in the third than in the other two treatments, and contrarian betting is almost completely eliminated by the belief elicitation procedure. Making bets improves the accuracy of stated beliefs. We propose a theoretical model, the Adaptive Model, to describe individual behavior and we find that it effectively explains betting decisions, especially in the third treatment.

Keywords: Parimutuel betting, Information aggregation, Elicited beliefs, Experimental economics

JEL Classification: C72, C92, D82

Suggested Citation

Koessler, Frédéric and Noussair, Charles N. and Ziegelmeyer, Anthony, Information Aggregation and Beliefs in Experimental Parimutuel Betting Markets (July 6, 2007). Jena Economic Research Paper No. 2007-033, Available at SSRN: https://ssrn.com/abstract=1021172 or http://dx.doi.org/10.2139/ssrn.1021172

Frédéric Koessler (Contact Author)

University of Cergy-Pontoise - THEMA ( email )

33 boulevard du port
F-95011 Cergy-Pontoise Cedex, 95011
France

Charles N. Noussair

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Anthony Ziegelmeyer

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

Queen's University Belfast - Queen's Management School ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

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