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Sequential Parimutuel Betting in the Laboratory

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Abstract

This paper investigates parimutuel betting in the laboratory. Our experimental design relies on a simple sequential betting game where equilibrium strategies are characterized according to objective probabilities, the number of bettors, and publicly observable odds. The empirically well-documented phenomenon referred to as the “favorite-longshot bias” is observed in two of our three treatments. We offer a theoretical explanation of the subjects' behavior which relies on rank-dependent expected utility and pessimistic expectations about future bets.

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Authors and Affiliations

  1. Strategic Interaction Group, Max Planck Institute for Research into Economic Systems, Jena, Germany

    Anthony Ziegelmeyer

  2. LARGE, Université Louis Pasteur, 61 avenue de la Forêt-Noire, F-67085, Strasbourg, France

    Marie-Hélène Broihanne

  3. THEMA (CNRS, UMR 7536), Université de Cergy-Pontoise, 33 boulevard du Port, F-95011, Cergy-Pontoise, France

    Frédéric Koessler

Authors
  1. Anthony Ziegelmeyer
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  2. Marie-Hélène Broihanne
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  3. Frédéric Koessler
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Ziegelmeyer, A., Broihanne, MH. & Koessler, F. Sequential Parimutuel Betting in the Laboratory. Journal of Risk and Uncertainty 28, 165–186 (2004). https://doi.org/10.1023/B:RISK.0000016142.47743.5a

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  • DOI: https://doi.org/10.1023/B:RISK.0000016142.47743.5a

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