Parimutuel Betting under Asymmetric Information

Frederic Koessler and Anthony Ziegelmeyer

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: This paper examines a game-theoretical model of parimutuel betting markets with asymmetric information. Generically, all Bayesian-Nash equilibria of the simultaneous game are characterized depending on the number of bettors and the quality of their private information. An equilibrium where all bettors use their private information always exists and becomes unique as the number of bettors increases. On the contrary, in a sequential framework, a perfectly revealing equilibrium does not always exist and disappears as the number of bettors increases. Bettors arbitrate between following their private signal, following the choices of previous bettors, and betting against the trend. On average,information is well aggregated by the market, but extreme effects based on herd and contrarian behavior occur in identifiable states of the world,leading to significant mispricing.

Keywords: Parimutuel betting; Asymmetric information; Information. (search for similar items in EconPapers)
JEL-codes: D62 D82 Q18 Q25 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (18)

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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 (2006)
Working Paper: Parimutuel Betting under Asymmetric Information (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2002-17

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