State-dependent Preferences in Prediction Markets and Prices as Aggregate Statistic

Urmee Khan

Studies in Microeconomics, 2016, vol. 4, issue 1, 70-77

Abstract: If traders in prediction markets have state-dependent preferences so that marginal utility of money varies across states, prices in a rational expectation equilibrium are quantile statistics of distributions that derive from both distribution of realized signals and the distribution of state-dependence parameters. As a result, even with a common prior and regardless of whether prices reveal realized signals fully or not, the interpretation of prices as posterior probabilities remains problematic.

Keywords: Prediction markets; Information aggregation; state-dependent preferences (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:sae:miceco:v:4:y:2016:i:1:p:70-77

DOI: 10.1177/2321022216649826

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