Plott, Charles R., Jorgen Wit, and Winston C. Yang. "Parimutuel Betting Markets as Information Aggregation Devices: Experimental Results," Economic Theory, 2003, 22:2, pp. 311 - 51.  Home/Search   Document Not in Database   Summary   Related Articles   Check

....is distributed across many sources. Supporting evidence can be found in empirical studies of options markets [14] political stock markets [7, 8, 22] sports betting markets [3, 9, 27] horse racing markets [30] market games [23, 24] and laboratory investigations of experimental markets [6, 25, 26]. The process of information incorporation is, at its essence, a distributed computation. Each trader begins with his or her own information. As trades are made, summary information is revealed through market prices. Traders learn or infer what information others are likely to have by observing ....

C. R. Plott, J. Wit, and W. C. Yang. Parimutuel betting markets as information aggregation devices: Experimental results. Technical Report Social Science Working Paper 986, California Institute of Technology, Apr. 1997.

....is high that the price of the underlying stock will go up, regardless of risk exposure to changes in the stock price. Because traders stand to earn a profit if they can make e#ective probability assessments, often prices in financial markets yield very accurate aggregate forecasts of future events [10, 29, 27, 28]. Real securities markets have complex payo# structures with various triggers. However, these can all be modeled as collections of more basic or atomic Arrow Debreu securities [1, 8, 20] One unit of one Arrow Debreu security pays o# one dollar if and only if (i#) acorresponding binary event ....

C. R. Plott, J. Wit, and W. C. Yang. Parimutuel betting markets as information aggregation devices: Experimental results. Technical Report Social Science Working Paper 986, California Institute of Technology, April 1997.

....explanation is that prices reveal to the ignorant agents any initially private information; that is, agents learn by observing prices. Several studies demonstrate that, in a laboratory setting, securities markets are often able to aggregate information correctly, as postulated by RE theory [9, 23, 24, 22]. Beyond the controlled setting of the laboratory, empiricists have analyzed the forecast accuracy of public markets. Perhaps the most direct tests involve sports betting markets. Several studies demonstrate that odds on horses correlate well with the actual frequencies of victory at the track ....

C. R. Plott, J. Wit, and W. C. Yang. Parimutuel betting markets as information aggregation devices: experimental results. Technical Report Social Science Working Paper 986, California Institute of Technology, April 1997.

.... match very closely with the horses actual frequencies of winning [1, 30, 32, 33, 35] and point spread betting markets yield unbiased predictions of sporting event outcomes [14] Several studies demonstrate that, in a laboratory setting, markets are often able to aggregate information optimally [10, 25, 26, 27]. In a game without monetary rewards, incentives to reveal information presumably derive from entertainment value, educational value, bragging rights, and or other intangible sources. Our recent investigations [22, 23] conclude that even market games show signs of collective competence. For ....

C. R. Plott, J. Wit, and W. C. Yang. Parimutuel betting markets as information aggregation devices: experimental results. Technical Report Social Science Working Paper 986, California Institute of Technology, Apr. 1997.

....is, agents learn by observing prices. Several authors show that, if agents begin with identical priors and disparate evidence, repeated observation of some aggregate statistic (e.g. price) will converge to a consensus on posteriors, for various sucient statistics [7, 12, 13, 14] Plott et al. [15] investigate, in a laboratory setting, whether parimutuel markets (the type employed at horse races) are able to aggregate information, as postulated by RE theory. In one set of experiments, each subject was given inside knowledge that a subset of horses would de nitely not win. Although all ....

C. R. Plott, J. Wit, and W. C. Yang. Parimutuel betting markets as information aggregation devices: experimental results. Technical Report Social Science Working Paper 986, California Institute of Technology, April 1997.

....aggregation has never enjoyed much popularity for this reason. The pathological behavior, we believe, can be attributed to the role of arbitrary budgets. In the approach developed here, we impose no budgets, but rather rely on risk aversion to limit bets to the nite range. 27 Plott et al. [59] investigate whether pari mutuel markets are able to aggregate information, as postulated by RE theory, in a laboratory setting. In one set of experiments, each subject was given inside knowledge that a subset of horses would de nitely not win. Although all agents were uncertain as to the outcome, ....

C. R. Plott, J. Wit, and W. C. Yang. Parimutuel betting markets as information aggregation devices: experimental results. Technical Report Social Science Working Paper 986, California Institute of Technology, April 1997.

....end of period B if state HB occurs and 0 cu otherwise. However, it is possible to trade these HB certi#cates in a second market throughout the whole trading year. The markets are organized as a computerized multiple unit double auction resembling a continuous market. 12 9 A related paper by Plott, Wit and Yang #1997# supports the notion that other market structures, e.g. a betting market, have an importantoreven decisive impact on the capability of markets to aggregate dispersed information. 10 We translated the set of instructions to make sure that the language did not cause di#erent behavior in Germany. ....

....16 Figure 2 clari#es the information structure for this example. Note that there is only one Rational Expectations Equilibrium but three cases in whichtwo of the three information groups can agree on a state, i.e. HAHB #HAandNOTMB informed groups#, HAMB #HA;NOTH B # and LALB #NOTHB;NOTM B #. 16 Plott, Wit and Yang #1997# used the same information structure as in this experiment but paid a dividend which depended on the total betting amount. 7 Figure 2: Information structure: state = HALB For each state combination exists a well de#ned equilibrium based on the combination of dividend payment and liquidation ....

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Plott, Charles R., J#orgen Wit, and Winston C. Yang, 1997, Parimutuel Betting Markets as Information Aggregation Devises: Experimental Results, Social Science Working Paper 986, California Institute of Technology.

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Plott, Charles R., Jorgen Wit, and Winston C. Yang. "Parimutuel Betting Markets as Information Aggregation Devices: Experimental Results," Economic Theory, 2003, 22:2, pp. 311 - 51.

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Plott, Charles, Wit, and W. C. Yang (1997) Parimutuel betting markets as information aggregation devices: Experimental results. Economic Theory.

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C. R. Plott, J. Wit, and W. C. Yang. Parimutuel betting markets as information aggregation devices: Experimental results. Technical Report Social Science Working Paper 986, California Institute of Technology, April 1997.

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C. R. Plott, J. Wit, W. C. Yang, Parimutuel betting markets as information aggregation devices: Experimental results, Tech. Rep. Social Science Working Paper 986, California Institute of Technology (Apr. 1997).

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C. R. Plott, J. Wit, and W. C. Yang. Parimutuel betting markets as information aggregation devices: Experimental results. Technical Report Social Science Working Paper 986, California Institute of Technology, Apr. 1997.

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