Information aggregation and belief elicitation in experimental parimutuel betting markets

Frederic Koessler, Charles Noussair and Anthony Ziegelmeyer

Journal of Economic Behavior & Organization, 2012, vol. 83, issue 2, 195-208

Abstract: This paper studies the impact of belief elicitation on informational efficiency and individual behavior in experimental parimutuel betting markets. In one treatment, groups of eight participants, who possess a private signal about the eventual outcome, play a sequential betting game. The second treatment is identical, except that bettors are observed by eight other participants who submit incentivized beliefs about the winning probabilities of each outcome. In the third treatment, the same individuals make bets and assess the winning probabilities of the outcomes. Market probabilities more accurately reflect objective probabilities in the third than in the other two treatments. Submitting beliefs reduces the favorite-longshot bias and making bets improves the accuracy of elicited beliefs. A level-k framework provides some insights about why belief elicitation improves the capacity of betting markets to aggregate information.

Keywords: Parimutuel betting; Information aggregation; Favorite-longshot bias; Elicited beliefs; Level-k reasoning; Experiment (search for similar items in EconPapers)
JEL-codes: C72 C92 D82 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:83:y:2012:i:2:p:195-208

DOI: 10.1016/j.jebo.2012.02.017

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