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Joshua Miller is an Associate Professor in Economics at the University of Melbourne in Melbourne, Australia.
TOPIC: Equilibrium Play in Experimental Parimutuel Betting Markets"
ABSTRACT: Parimutuel wagering markets have attractive features, both as test beds for financial market theory, and as mechanisms for aggregating information. We design a laboratory experiment to test theoretical predictions of behavior in parimutuel betting markets. In our baseline game, market outcomes align with Bayesian Nash equilibrium predictions and shed light on the origin of the well-known favorite-longshot bias. In games with slightly richer information structures theoretical predictions depart from intuition and market outcomes depart from theoretical predictions.