He, Xue-Zhong and Treich, Nicolas (2017) Prediction market prices under risk aversion and heterogeneous beliefs. Journal of Mathematical Economics, 70. pp. 105-114.

This is the latest version of this item.

Full text not available from this repository.
Identification Number : 10.1016/j.jmateco.2017.02.005


In this paper, we examine the properties of prediction market prices when risk averse traders have heterogeneous beliefs in state probabilities. We show that the equilibrium state prices equal the mean beliefs of traders about that state if and only if the traders’ common utility function is logarithmic. We also provide a necessary and sufficient condition ensuring that the state prices are systematically below or above the mean beliefs of traders, thus providing a rational explanation to the favorite-longshot bias in prediction markets.

Item Type: Article
Language: English
Date: May 2017
Refereed: Yes
Uncontrolled Keywords: Prediction market, Heterogeneous beliefs, Risk aversion, Favorite-longshot bias
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 23 Mar 2017 10:06
Last Modified: 18 Apr 2024 11:58
OAI Identifier: oai:tse-fr.eu:31579
URI: https://publications.ut-capitole.fr/id/eprint/23266

Available Versions of this Item

View Item