Determination of Odds in Prediction Markets: Coexistence of Posted-Offer and Double-Auction Designs

24 Pages Posted: 18 Feb 2015

See all articles by Levent Celik

Levent Celik

University of Leicester - Department of Economics, Finance and Accounting; Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences

Esen Onur

Commodity Futures Trading Commission (CFTC)

Date Written: February 14, 2015

Abstract

This paper studies the coexistence of two competing mechanisms in the same market, where one follows the posted-offer rule and the other one incorporates a double-auction mechanism. We explore this coexistence within a sports betting example in which bettors are free to choose between a bookie (posted-offer market) and a betting exchange. Our findings imply that i) bettors' risk aversion parameter is instrumental in whether these two mechanisms coexist or not, ii) most bettors are strictly better off, and none is worse off, when they have access to both of these competing mechanisms rather than just one, and iii) these results hold even when we allow the bookie to make a positive profit instead of following a zero expected profit pricing rule.

Keywords: Prediction markets, posted-offer, double-auction

JEL Classification: D44, D82

Suggested Citation

Celik, Levent and Onur, Esen, Determination of Odds in Prediction Markets: Coexistence of Posted-Offer and Double-Auction Designs (February 14, 2015). Available at SSRN: https://ssrn.com/abstract=2565924 or http://dx.doi.org/10.2139/ssrn.2565924

Levent Celik

University of Leicester - Department of Economics, Finance and Accounting ( email )

United Kingdom

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences ( email )

Politickych veznu 7
Prague, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

Esen Onur (Contact Author)

Commodity Futures Trading Commission (CFTC) ( email )

1155 21st Street NW
Washington, DC 20581
United States

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