Sequential Parimutuel Betting in the Laboratory

Anthony Ziegelmeyer, Marie-Hélène Broihanne and Frederic Koessler

Journal of Risk and Uncertainty, 2004, vol. 28, issue 2, 165-186

Abstract: This paper investigates parimutuel betting in the laboratory. Our experimental design relies on a simple sequential betting game where equilibrium strategies are characterized according to objective probabilities, the number of bettors, and publicly observable odds. The empirically well-documented phenomenon referred to as the "favorite-longshot bias" is observed in two of our three treatments. We offer a theoretical explanation of the subjects' behavior which relies on rank-dependent expected utility and pessimistic expectations about future bets.

Date: 2004
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