Parimutuel Betting under Asymmetric Information

Frederic Koessler, Charles Noussair and Anthony Ziegelmeyer

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: This paper examines simple parimutuel betting games under asymmetric information, with particular attention to differences between markets in which bets are submitted simultaneously versus sequentially. In the simultaneous parimutuel betting market, all (symmetric and asymmetric) Bayesian-Nash equilibria are generically characterized as a function of the number of bettors and the quality of their private information. There always exists a separating equilibrium, in which all bettors follow their private signals. This equilibrium is unique if the number of bettors is sufficiently large. In the sequential framework, earlier bets have information externalities, because they may reveal private information of bettors. They also have payoff externalities, because they affect the betting odds. One effect of these externalities is that the separating equilibrium disappears if the number of betting periods is sufficiently large.

Keywords: Parimutuel betting; Asymmetric information; Information aggregation; Herd behavior; Contrarian behavior (search for similar items in EconPapers)
JEL-codes: C72 D82 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2006-03
New Economics Papers: this item is included in nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Parimutuel betting under asymmetric information (2008)
Working Paper: Parimutuel betting under asymmetric information (2008)
Working Paper: Parimutuel Betting under Asymmetric Information (2004)
Working Paper: Parimutuel Betting under Asymmetric Information (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:esi:discus:2006-05

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