The Wisdom of Large and Small Crowds: Evidence from Repeated Natural Experiments in Sports Betting
25 Pages Posted: 18 Jan 2017
Date Written: January 13, 2017
Prediction markets have proved excellent tools for forecasting, outperforming experts and polls in many settings. But do larger markets, with wider participation, perform better than smaller markets? In this paper we analyse a series of repeated natural experiments in sports betting. The Queen's Club Tennis Championships are held every year, but every other year the Championships clash with a major soccer tournament. We find that tennis betting prices become significantly less informative when participation rates are adversely affected by the clashing soccer tournament. Larger markets perform better, in part, because of the higher returns they offer for informed trading.
Keywords: prediction markets, forecasting, sports betting, natural experiment
JEL Classification: G02, G12, G14
Suggested Citation: Suggested Citation