Summary.
The demonstrated capacity of markets to aggregate information motivates research on alternative institutions designed to do the same task. This study inquires about forms of parimutuel betting systems. Measures of information aggregation for performance evaluation are introduced. Two environments are studied. The first poses a simpler aggregation problem than does the second. Information aggregation can be detected under both environments but the degree depends on the choice of baselines. The competitive equilibrium rational expectations model is clearly the best model in the simpler environment but, in the more complex environment, models based on private information alone are more accurate. Bluffing and waiting inhibit aggregation and time and experience are conjectured to lead to more rational expectations-like performance.
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Received: February 7, 2001; revised version: May 10, 2002
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ID="*" The financial support of the California Institute of Technology Laboratory for Experimental Economics and Political Science and of the National Science Foundation is greatly appreciated. We wish to thank Colin Camerer, David Grether, and Markus Nöth for their comments and insights at the early stages of this research. In addition, we wish to acknowledge the many useful comments provided by the seminar on experimental economics at Caltech and by Thierry Foucault. We also thank Ralph Miles for correcting an error regarding parimutuel terminology and John Patty for his comments on the manuscript.
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ID="**" A former graduate student of the California Institute of Technology
Correspondence to: C.R. Plott
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Plott, C., Wit, J. & Yang, W. Parimutuel betting markets as information aggregation devices: experimental results. Econ Theory 22, 311–351 (2003). https://doi.org/10.1007/s00199-002-0306-7
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DOI: https://doi.org/10.1007/s00199-002-0306-7