Noise, Information, and the Favorite-Longshot Bias in Parimutuel Predictions

• 成果类型: Article
• 署名作者: Ottaviani, Marco; Sorensen, Peter Norman
• 署名单位: Northwestern University; Northwestern University; University of Copenhagen
• 刊物名称: AMERICAN ECONOMIC JOURNAL-MICROECONOMICS
• ISSN/ISSBN: 1945-7669
• DOI: 10.1257/mic.2.1.58
• 发表日期: 2010
• 页码: 58-85
• 关键词: subjective probabilities; Contingent claims; insider traders; betting markets; exotic bets; EFFICIENCY; BEHAVIOR; bettors; utility; RISK

摘要

According to the favorite-longshot bias, the expected return on an outcome tends to increase in the fraction of bets laid on that outcome. We derive testable implications for the direction and extent of the bias depending on the ratio of private information to noise present in the market. We link this ratio to observables such as the number of bettors, the number of outcomes, the amount of private information, the level of participation generated by recreational interest in the event, the divisibility of bets, the presence of ex post noise, as well as ex ante asymmetries across outcomes. (JEL D81, D83)