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
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