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

See all articles by Ulrich Sonnemann

Ulrich Sonnemann

University of Muenster - Finance Center Muenster

Colin Camerer

California Institute of Technology - Division of the Humanities and Social Sciences

Craig R. Fox

University of California, Los Angeles (UCLA) - Anderson School of Management

Thomas Langer

University of Muenster - Finance Center

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

Sonnemann, Ulrich and Camerer, Colin F. and Fox, Craig R. and Langer, Thomas, Partition-Dependent Framing Effects in Lab and Field Prediction Markets (February 28, 2008). 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, Available at SSRN: https://ssrn.com/abstract=1099073 or http://dx.doi.org/10.2139/ssrn.1099073

Ulrich Sonnemann (Contact Author)

University of Muenster - Finance Center Muenster ( email )

Universitaetsstr. 14-16
Muenster, D-48143
Germany

Colin F. Camerer

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States
626-395-4054 (Phone)
626-432-1726 (Fax)

Craig R. Fox

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Thomas Langer

University of Muenster - Finance Center ( email )

Universitatsstr. 14-16
Muenster, 48143
Germany
+49 251 83 22033 (Phone)

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