Risk aversion in prediction markets: A framed-field experiment

Béatrice Boulu-Reshef, Irene Comeig, Robert Donze and Gregory D. Weiss

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Abstract: To make better decisions today, companies and other economic agents are interested in getting accurate predictions of future events. Prediction markets can, at least potentially, give those accurate forecasts for the probability of the event by aggregating information from traders. However, formal studies highlight that the risk attitudes of market participants may bias the market equilibrium prices, and consequently make the prediction unreliable. This research examines the effect of participants' risk attitudes on prediction market prices, through a framed field experiment on the two semifinals at the 2015 NCAA Men's Division Basketball Tournament. The results of the experiment show a significant price difference between the risk-averse group and the less risk-averse group. The large price discrepancy between markets with participants with varying risk aversion suggests that risk aversion deserves a critical consideration in future prediction-market research and implementation.

Keywords: Experimental economics; Field experiments; Prediction markets; Risk aversion; Self-confidence (search for similar items in EconPapers)
Date: 2016-11-01
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Citations: View citations in EconPapers (7)

Published in Journal of Business Research, 2016, 69 (11), pp.5071-5075. ⟨10.1016/j.jbusres.2016.04.082⟩

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Journal Article: Risk aversion in prediction markets: A framed-field experiment (2016)
Working Paper: Risk aversion in prediction markets: A framed-field experiment (2016)
Working Paper: Risk aversion in prediction markets: A framed-field experiment (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01368197

DOI: 10.1016/j.jbusres.2016.04.082

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