Understanding the Plott-Wit-Yang Paradox

Katarína Kálovcová and Andreas Ortmann

Journal of Prediction Markets, 2009, vol. 3, issue 3, 33-44

Abstract: Plott, Wit & Yang (2003) conduct a betting market experiment and find: First, information was aggregated. This suggests that traders updated their private information based on observed market odds. Second, a model based only on the use of private information seems to fit their data best. The authors call this paradoxical. Because the original data are lost, we replicate their experiment. Our results suggest that the paradox seems due to aggregate rather than individual level data analysis. We analyze the individual level data and explain the paradoxical results reported in Plott et al. (2003).

Date: 2009
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Working Paper: Understanding the Plott-Wit-Yang Paradox (2009)
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