improving prediction market forecasts by detecting and correcting possible over reaction to price movements abstract we examine the impact of price trends on the accuracy of forecasts from prediction markets in particular we study an electronic betting exchange market and construct independent variables from market price odds time series from 6058 individual markets a dataset consisting of over 8 4 million price points using a conditional logit model we find that a systematic relationship exists between trends in odds and the accuracy of odds implied event probabilities the relationship is consistent with participants over reacting to price movements in particular in different time segments of the market increasing and decreasing odds lead respectively to under and over estimation of odds implied probabilities we develop a methodology to detect and correct the erroneous forecasts associated with these trends in odds in order to considerably improve the quality of forecasts generated in prediction markets

market efficiency and insider trading new evidence that corporate insiders earn profits from stock trading does not surprise most financial economists but that outsiders can earn abnormal returns by using pub licly available insider trading data constitutes a serious exception to stock market efficiency the authors show that this anomaly conti nues to exist despite the publication of studies attesting to its exi stence they suggest that the anomalous profits to outsiders are a ma nifestation of the size and earnings price ratio effects controlling for these factors reduces outsider profits by half the additional a ssumption of a 2 percent transactions cost makes outsider profits zer o or negative insider profits after an assumed 2 percent transactio ns cost are a moderate 3 percent per annum for annual holding period s copyright 1988 by the university of chicago

exploring decision makers use of price information in a speculative market we explore the extent to which the decisions of participants in a speculative market effectively account for information contained in prices and price movements the horse race betting market is an ideal environment to explore these issues a conditional logit model is constructed to determine winning probabilities based on bookmakers closing prices and the time indexed movement of prices to the market close we incorporate a technique for extracting predictors from price odds curves using orthogonal polynomials the results indicate that closing prices do not fully incorporate market price information particularly information that is less readily discernable by market participants

the long run and short run impact of captive supplies on the spot market price an agent based artificial market an agent based model is developed that matches the results of xia and sexton 2004 as well as our generalization of their model we relax xia and sexton s assumption of no supply response by captive feeders which reduces the price depressing effect of captive supplies finally the agent based model is used to simulate packers choosing both captive supply quantities and spot market quantities packers in the relaxed agent based model choose no captive supplies and thus reach the cournot solution the research narrows the gap between theoretical models and the empirical work on captive supplies that shows little effect on prices but a gap remains

efficiency in the nfl betting market modifying and consolidating research methods modifying and consolidating previous research methods to generate more reliable estimates some fairly weak evidence is found of inefficiency in the nfl betting market resulting from a bias favouring home underdog against away favourite teams in contrast to previous research no evidence is found that momentum strategies generate significant returns in this market

assessing bettors ability to process dynamic information policy implications regulation is often employed to encourage the provision of readily interpretable explicit information to betting markets in an effort to promote their efficiency this approach is supported by a considerable volume of laboratory based research which suggests that individuals make poor judgments in the face of implicit dynamic information this article investigates to what extent horserace bettors who have strong incentives to make good probability judgments require the regulator s protection from such hostile information environments in particular we examine the accuracy of the subjective probabilities of bettors concerning 16 344 horses in 1671 races we find that bettors are skilled in adopting effective heuristics to simplify their dynamic information environment and even in the face of restricted information develop well calibrated judgments using outcome feedback a number of factors that help bettors to achieve good calibration are identified and the implications for market regulation are discussed

agent based computational transaction cost economics this article explores the use of agent based computational economics ace for modelling the development of transactions between firms transaction cost economics neglects learning and the development of trust ignores the complexity of multiple agents and assumes rather than investigates the efficiency of outcomes efficiency here refers to minimum cost or maximum profit we model how co operation and trust emerge and shift adaptively as relations evolve in a context of multiple interacting agents this may open up a new area of application for the ace methodology a simulation model is developed in which agents make and break transaction relations on the basis of preferences based on trust and potential profit profit is a function of product differentiation specificity of assets economy of scale and learning by doing in ongoing relations agents adapt their trust in a partner as a function of his loyalty exhibited by his continuation of a relation they also adapt the weight they attach to trust on the basis of realized profit the model enables an assessment of the efficiency of outcomes relative to the optimum as a function of trust and market conditions we conduct a few experiments to illustrate this application of ace

everyone s a winner the market impact of technologically advantaged agents using betting data we show that a market with agents having heterogeneous utility can include a net transfer of wealth to technologically advantaged agents taas from non taas with the transaction proving beneficial to both in terms of their realized utility

evolving market structure an ace model of price dispersion and loyalty we present an agent based computational economics ace model of the wholesale sh market in marseille two of the stylized facts of that market are high loyalty of buyers to sellers and persistent price dispersion although it is every day the same population of sellers and buyers that meets in the same market hall in our ace model sellers decide on quantities to supply prices to ask and how to treat loyal customers while buyers decide which sellers to visit and which prices to accept learning takes place through reinforcement the model explains both stylized facts price dispersion and high loyalty in a coevolutionary process buyers learn to become loyal as sellers learn to o er higher utility to loyal buyers while these sellers in turn learn to o er higher utility to loyal buyers as they happen to realize higher gross revenues from loyal buyers the model also explains the e ect of heterogeneity of the buyers we analyze how this leads to subtle di erences in the shopping patterns of the di erent types of buyers and how this is

the effects of risk aversion on wagering point spread versus odds currently casinos and bookies use the point spread method for betting on football games since an odds system is used in various other sports what factors explain the current structure of the betting market as the bookie s profits are a percentage of the total money wagered the existence of point spread betting indicates that the total money wagered under this betting scheme is greater than that generated by odds betting this paper suggets that the current market structure is a consequence of risk averse attitudes of bettors

testing the efficiency of the national football league betting market this study presents three tests of efficiency of the nfl betting market for the years 1994 2000 first it tests for weak form informational efficiency of the betting market then it examines whether the market incorporates objective information such as power scores and stadium characteristics that might be useful for predicting game outcomes finally it determines whether alternative betting strategies would have yielded a profit although there is some indication that differences in the playing surfaces of home and visiting teams were not fully reflected in the betting lines it is found that there is no conclusive evidence to suggest that the market was inefficient over the period examined

introduction to the special issue on agent based computational economics abstract a brief overview of agent based computational economics ace is given followed by a synopsis of the articles included in this special issue on ace and in a companion special issue on ace scheduled to appear in computational economics

how do prior gains and losses affect subsequent risk taking new evidence from individual level horse race bets many empirical studies focusing on how prior outcomes affect subsequent risk taking report conclusions that appear mutually contradictory while some studies document increased risk taking after gains and risk aversion after losses others report the opposite this paper contributes to this literature by investigating horse race bettors sequential risky decisions using individual level data a horse race betting market is a laboratory like environment and can be used to analyze behavioral patterns associated with decision making under risk we find evidence for i the house money effect as bettors take riskier wagers after gains and mostly spend the money they have won ii risk aversion after prior losses which we label a playing safe effect and iii a preference for breakeven contrary to the widely held conception in the empirical literature our findings suggest that the break even effect does not necessarily imply an increased preference for riskier bets because bettors may seek to break

tests of the efficiency of racetrack betting using bookmaker odds the objective of this study is to evaluate the informational efficiency of the market for betting on horse races whereas the price data used in previous studies have been drawn largely from totalizator parimutuel odds the data used in this study are derived from bookmaker odds the availability of a series of prices throughout betting facilitates the use of filter tests to evaluate market efficiency we conclude that this gambling market is efficient in the use of information supplied via both the movements in odds during the course of betting and the selections of newspaper tipsters however there is evidence to suggest that those with access to private information can earn positive returns from gambling

inside information in a betting market inside information concerning a risky asset is presumed to be beneficial to its holder measurement of the impact and benefit of inside information is difficult because its use for financial gain is often illegal ideally one would like to investigate and compare two mutually isolated groups one with and the other without access to inside information the australian horse betting market offers such an opportunity it is found that even exposure to second hand inside information effects a change in behavior a rise in payoffs and adds power and significance to the prediction of race results copyright 1995 by royal economic society

terms of trade and domestic distribution export led growth with abundant labour abstract a general equilibrium macro model is constructed to explore effects of export led growth policies on the terms of trade and the domestic distribution of a developing region with abundant labour this region the south trades with another the north they have different technologies and supplies of factors it is shown that under certain conditions of dualism in the production of goods and of abundant labour supply in the south an increase in the volume of exports from the south may bring about a sustained worsening of the south s terms of trade with the north even if this increase in exports is due to a positive shift in demand from the north this change in the terms of trade is accompanied by a sustained loss of purchasing power of wages within the south these results take place in a walrasian stable market when technologies are more homogenous and labour less abundant the results are reversed increased exports will take place together with improvements in terms of trade and a tendency to equalise factor prices between the regions the results argue for coordination of domestic and international policies with special attention to technologies and labour markets

parimutuel contests with strategic risk sensitive bettors abstractexisting models in the parimutuel betting literature typically explain betting data by either assuming a single representative bettor with certain risk preferences or by assuming that a number of risk neutral bettors compete strategically within a game theoretic framework we construct a theoretical framework of parimutuel markets in which we model both strategic interaction and individual bettor risk preferences distinguishing between sophisticated insiders and recreational outsiders we solve this model analytically for the optimal insider betting amount in a static symmetric nash equilibrium a new data set of 126 million individual horse race bets in new zealand from 2006 to 2014 allows us to calibrate the model we find that insiders those betting 100 or more outperform outsiders by 7 5 in terms of realized returns the best fit of the model to the data is obtained when insiders are assumed to be risk neutral and to have an information advantage of 0 08 in probability terms this findin

the ordinal efficiency of betting markets an exploded logit approach this article offers a new perspective on efficiency in betting markets by examining the degree to which finishing order in horse races corresponds to probabilities inherent in odds across different categories of horse race the application of an exploded logit procedure reveals a significantly greater degree of ordinal efficiency in higher relative to lower class races explanations for the phenomenon include differences in prize related incentives cross market distinctions in information markets and differential opportunity incentive for market manipulation

marginal risk aversion and preferences in a betting market an individual s behavioural attitudes toward variance and non symmetry in the payoff distributions of pari mutuel gambles are empirically examined using the von neumann morgenstern expected utility of wealth paradigm preferences over payoff distributions for a representative bettor are estimated from observed payoffs at a greyhound racetrack the results indicate that the representative bettor exhibits increasing absolute risk aversion and given that the representative bettor is locally non satiated with regard to wealth exhibits preference for variance and aversion to positive skewness in the payoff distributions of the gambles examined

exploring the production of natural gas through the lenses of the aceges model due to the increasing importance of natural gas for modern economic activity and gas s non renewable nature it is extremely important to try to estimate possible trajectories of future natural gas production while considering uncertainties in resource estimates demand growth production growth and other factors that might limit production in this study we develop future scenarios for natural gas supply using the aceges computational laboratory conditionally on the currently estimated ultimate recoverable resources the collective view and golden age scenarios suggest that the supply of natural gas is likely to meet the increasing demand for natural gas until at least 2035 the golden age scenario suggests significant jumps of natural gas production important for testing the resilience of long term strategies

sequential parimutuel games abstract in a parimutuel betting system a successful player s return depends on the number of other players who choose the same action this paper examines a general solution for two action sequential parimutuel games and shows how the unique equilibrium of such games leads to a simple pattern of behavior in particular we show that there is an advantage to being an early mover that early players might choose actions with an ex ante low probability of success and that player action choices can flip with small changes in the parameters of the game

terms of trade domestic distribution and export led growth a rejoinder to rejoinders abstract this note responds to rejoinders by gunning 1984 srinivasan and bhagwati 1984 and to a new comment by findlay 1984 all dealing with my 1981 results on export led growth chichilnisky 1981 and with my recent response to earlier comments chichilnisky 1984 the 1981 results on export led growth are analyzed further and both the comparative statics and stability propositions are shown to be correct exactly as stated errors and misinterpretations in the comments by gunning srinivasan bhagwati and findlay are traced to 1 the erroneous identification of a cross equilibrium locus with a supply curve an error akin to the basic identification problem in econometrics and 2 the erroneous stability analysis which derives from using a cross equilibrium locus as a supply curve both of these errors arise from an attempt to understand with partial equilibrium tools what is essentially a general equilibrium phenomenon it is also shown that all the examples these authors provide confirm the stability and comparative statics results of my 1981 paper the only difference is in their erroneous interpretation of the adjustment process from one equilibrium to another what is left after these errors are corrected is pure rhetoric

betting bias in exotic bets abstract the evidence from racetrack betting is that the subjective probabilities to win expressed through the public s bets are good approximations to the objective probabilities on the whole but that a betting bias exists in that favorites are underbet and long shots overbet we examine these questions for exactas and trifectas which the aid of a new database the approximation of subjective to objective probabilities is good for exactas and no betting bias is evident for trifectas the findings are more ambiguous and suggest that a taste for long shots or a misperception of true probabilities may play a role

efficiency characteristics of a market for state contingent claims this paper concludes that a market for state contingent claims uk horserace betting displays evidence of pervasive but heterogeneous forms of inefficiency in significant contrast to earlier investigations using hitherto unavailable data comparison of notional returns implicit in parallel sets of bookmaker and parimutuel odds identifies inefficiency in terms of zones of distinct but contrasting forms of cross market returns differential the inefficiency is rationalized in terms of both buyer and supplier behaviour its durability is explained in terms of limited arbitrage opportunities

re examining the betting market on major league baseball games is there a reverse favourite longshot bias a recent study of the fixed odds betting market on baseball games while finding that the betting market is generally efficient also found evidence of an underbetting on underdog teams this article examines the evidence for this new anomaly it corrects woodland and woodland s estimates of the commission subjective win probabilities and test statistics the efficiency null hypothesis cannot be rejected for all of their tests when revised test statistics are calculated for their sample period however like them it was found that slight underdogs are underbet it is also shown that their bias is not simply a bias involving favourites and underdogs whether underdogs are playing at home or away also seems to matter in their sample period as well a positive relationship between returns and subjective probabilities was found for underdogs and favourites a relationship suggestive of a favourite longshot bias rather than its reverse it is concluded that there is insufficient evidence to claim that this

efficiency and profitability in exotic bets the efficiency and profitability of exotic racetrack bets such as exactas and daily doubles are examined efficiency is understood to mean that above average returns cannot be made in the long run once risk is appropriately controlled for the markets in question are found not to be efficient the inefficiencies however are insufficient to permit simple strategies to show a consistent profit some evidence of smart money exists in that holders of inside information may bet on exactas rather than equivalent standard bets in order to avoid signaling their actions to the betting public copyright 1987 by the review of economic studies limited

terms of trade and domestic distribution a comment abstract in a recent issue of this journal chichilnisky 1981 develops a north south two good static model to explore the implications of export led growth policies for the south s terms of trade and income distribution it is my contention that most of the results of this paper are invalid as stated furthermore i claim that the problems with these results are due in good part to mistakes when dealing with the elementary properties of the model namely existence uniqueness and stability of equilibria the first part of this note reviews these properties and the main results of chichilnisky 1981 are discussed in the final part

information aggregation and belief elicitation in experimental parimutuel betting markets this paper studies the impact of belief elicitation on informational efficiency and individual behavior in experimental parimutuel betting markets in one treatment groups of eight participants who possess a private signal about the eventual outcome play a sequential betting game the second treatment is identical except that bettors are observed by eight other participants who submit incentivized beliefs about the winning probabilities of each outcome in the third treatment the same individuals make bets and assess the winning probabilities of the outcomes market probabilities more accurately reflect objective probabilities in the third than in the other two treatments submitting beliefs reduces the favorite longshot bias and making bets improves the accuracy of elicited beliefs a level k framework provides some insights about why belief elicitation improves the capacity of betting markets to aggregate information

long term forecasting of natural gas production abstract natural gas is an important energy source for power generation a chemical feedstock and residential usage it is important to analyse the future production of conventional and unconventional natural gas analysis of the literature determined conventional urr estimates of 10 700 18 300 ej and the unconventional gas urr estimates were determined to be 4250 11 000 ej six scenarios were assumed with three static where demand and supply do not interact and three dynamic where it does the projections indicate that world natural gas production will peak between 2025 and 2066 at 140 217 ej y 133 206 tcf y natural gas resources are more abundant than some of the literature indicates

searching for positive returns at the track a multinomial logic model for handicapping horse races this paper investigates fundamental investment strategies to detect and exploit the public s systematic errors in horse race wager markets a handicapping model is developed and applied to win betting in the pari mutuel system a multinomial logit model of the horse racing process is posited and estimated on a data base of 200 races a recently developed procedure for exploiting the information content of rank ordered choice sets is employed to obtain more efficient parameter estimates the variables in this discrete choice probability model include horse and jockey characteristics plus several race specific features hold out sampling procedures are employed to evaluate wagering strategies a wagering strategy that involves unobtrusive bets with a side constraint eliminating long shot betting appears to offer the promise of positive expected returns even in the presence of the typically large track take encountered at thoroughbred racing events

the degree of inefficiency in the football betting market statistical tests abstract this paper tests the hypothesis that the football betting market is efficient our statistical tests are stronger than those in previous studies and we examine both nfl and college data over a sample period of fifteen years our statistical tests detect two specific biases in the nfl market and an unspecified bias in the college market we examine the year to year consistency and magnitudes of the biases and find that the nfl bias against home teams has been nearly eliminated while the bias against underdogs has increased profitable exploitation of the biases depends upon transaction costs

efficiency of the market for racetrack betting many racetrack bettors have systems since the track is a market similar in many ways to the stock market one would expect that the basic strategies would be either fundamental or technical in nature fundamental strategies utilize past data available from racing forms special sources etc to handicap races the investor then wagers on one or more horses whose probability of winning exceeds that determined by the odds by an amount sufficient to overcome the track take technical systems require less information and only utilize current betting data they attempt to find inefficiencies in the market and bet on such overlays when they have positive expected value previous studies and our data confirm that for win bets these inefficiencies which exist for underbet favorites and overbet longshots are not sufficiently great to result in positive profits this paper describes a technical system for place and show betting for which it appears to be possible to make substantial positive profits and thus to demonstrate market inefficiency in a weak form sense estimated theoretical probabilities of all possible finishes are compared with the actual amounts bet to determine profitable betting situations since the amount bet influences the odds and theory suggests that to maximize long run growth a logarithmic utility function is appropriate the resulting model is a nonlinear program side calculations generally reduce the number of possible bets in any one race to three or less hence the actual optimization is quite simple the system was tested on data from santa anita and exhibition park using exact and approximate solutions that make the system operational at the track given the limited time available for placing bets and found to produce substantial positive profits a model is developed to demonstrate that the profits are not due to chance but rather to proper identification of market inefficiencies

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

structural reforms animal spirits and monetary policies abstract we use a new keynesian behavioral macroeconomic model to analyze how structural reforms affect the economy there are two types of structural reforms the first one increases price flexibility the second one increases competition in the labor market and raises potential output we find that in a rigid economy business cycle movements are dominated by movements of animal spirits increasing price flexibility reduces the power of animal spirits and the boom bust nature of the business cycle we study the trade offs between output and inflation volatility faced by the central bank we find that flexibility improves these trade offs making it easier for the central bank to stabilize output and inflation

do horses like vodka and sponging on market manipulation and the favourite longshot bias one of the most striking empirical patterns of horse race betting markets is the favourite longshot bias bets on favourites have dramatically higher expected returns than bets on longshots the literature offers a couple of different though not mutually exclusive explanations based on risk preferences and probability perceptions this article adds a new possible explanation the favourite longshot bias may be the rational answer of an honest audience to a simple but highly lucrative cheating opportunity of insiders we provide anecdotal evidence that the type of cheating we model here really takes place what is more by employing a large scale german data set we are able to demonstrate that the pattern of the favourite longshot bias changes as the opportunity of cheating vanishes the changes we observe are in accord with the cheating model we suggest

time is money costing the impact of duration misperception in market prices abstract we explore whether and to what extent traders in a real world financial market where participants judgements are reportedly well calibrated are subject to duration misperception to achieve this we examine duration misperception in the horserace betting market we develop a two stage algorithm to predict horses winning probabilities that account for a duration related factor that is known to affect horses winning prospects the algorithm adapts survival analysis and combines it with the conditional logit model using a dataset of 4736 horseraces and the lifetime career statistics of the 53 295 horses running in these races we demonstrate that prices fail to discount fully information related to duration since a horse s last win we show that this failure is extremely costly since a betting strategy based on the predictions arising from the model shows substantial profits 932 5 percent and 16 27 percent with and without reinvestment of winnings respectively we discuss the important implications of duration neglect in the wider economy

yes one day international cricket in play trading strategies can be profitable abstract in this study we employ a monte carlo simulation technique for estimating the conditional probability of victory at any stage in the first or second innings of a one day international odi cricket match this model is then used to test market efficiency in the betfair in play market for large sample of odi matches we find strong evidence of overreaction in the first innings a trading strategy of betting on the batting team after the fall of a wicket produces a significant profit of 20 we also find some evidence of underreaction in the second innings although it is less economically and statistically significant than the first innings overreaction we also implement trades when the discrepancy between the probability of victory implied by current market odds differs substantially from the odds estimated by our monte carlo simulation model we document a number of trading strategies that yield large statistically significant positive returns in both the first and second innings

how vulnerable is the emissions market to transaction costs an abms approach abstract the impact of transaction costs on the early emissions trading market is examined by applying an agent based model and simulation abms approach for a realistic model set up bounded rationality stochastic characteristics and learning by doing are considered in our search processes marginal abatement cost parameters are obtained from yoo et al 2010 which is an experimental study on the emissions trading in the korean power sector sensitivity analyses are performed on market performance indices with regard to transaction cost parameters which represent scales and the learning elasticities of transaction costs a total of 960 simulations were run in this sensitivity analysis sensitivity analysis results consistently show that higher transaction costs worsen market performance the most remarkable finding in these results is that welfare performance of all the transactions decreases by up to 50 as the scale parameters of transaction costs increase implying that welfare gain from introducing emissions trading disappears significantly however with learning curve effect welfare performance could be regained by up to 26 in sum although transaction costs significantly encroach upon trade gains at the early stage based on our simulation results the welfare loss by way of transaction costs is lessened as the knowledge of market participants progresses

learning to speculate experiments with artificial and real agents abstract this paper employs an artificial agent based computational approach to understanding and designing laboratory environments in which to test kiyotaki and wright s search model of money the behavioral rules of the artificial agents are modeled on the basis of prior evidence from human subject experiments simulations of the artificial agent based model are conducted in two new versions of the kiyotaki wright environment and yield some testable predictions these predictions are examined using data from new human subject experiments the results are encouraging and suggest that artificial agent based modeling may be a useful device for both understanding and designing human subject experiments

revealing weak form inefficiency in a market for state contingent claims the importance of market ecology modelling procedures and investment strategies this paper examines the degree to which current prices discount historical prices in a market for state contingent claims conditional logit analysis is employed to predict winning probabilities based on market prices in a betting market these are used together with various wagering strategies to yield substantial abnormal returns consequently in contrast to the existing literature the results suggest that the market is not weak form efficient the disparity with previous efficiency studies highlights the importance of considering market ecology and of adopting an appropriate modelling procedure and investment strategy to fully exploit information contained in market prices

arbitrage strategies for cross track betting on major horse races cross track betting permits bettors to place their local tracks on a race being run at another track since each track operates a separate betting pool the odds can vary across the tracks the data suggest that the odds vary and they often vary dramatically allowing arbitrage opportunities this article employs a risk free arbitrage model to demonstrate the cross track inefficiency and recommends an optimal capital growth model for exploiting it a simple method is proposed for a single bettor at a single cross track the results indicate that these methods would have worked well in practice on a number of recent triple crown races copyright 1990 by the university of chicago

is timing everything in horse betting bet amount timing and bettors returns in pari mutuel wagering markets abstract noise trader models suggest that smart money profits from uninformed speculators this paper investigates how rates of return are associated with the timing of a bet and the amount staked in a pari mutuel horse betting market we employ a novel data set measured at the level of individual bettors on the finnish monopoly operator s online platform our findings suggest that relative to other bets late high stakes wagers are more profitable this implies that along with timing bet sizes should be accounted for when analysing market efficiency

evolving traders and the business school with genetic programming a new architecture of the agent based artificial stock market in this paper we propose a new architecture to study arti cial stock markets this architecture rests on a mechanism called school which is a procedure to map the phenotype to the genotype or in plain english to uncover the secret of success we propose an agent based model of school and consider school as an evolving population driven by single population gp sgp the architecture also takes into consideration traders search behavior by simulated annealing traders search density can be connected to psychological factors such as peer pressure or economic factors such as the standard of living this market architecture was then implemented in a standard arti cial stock market our econometric study of the resultant arti cial time series evidences that the return series is independently and identically distributed iid and hence supports the e cient market hypothesis emh what is interesting though is that this iid series was generated by traders who do not believe in the emh at all in fact our study indicates

recent evolutionary theorizing about economic change this famous passage from marshall s principles of economics it first appeared in the fifth edition which came out in 1907 nicely brings out two issues which are as germane to economics today as they were when marshall wrote the first is the heavy reliance by economists in their formal theorizing on the notion of equilibrium the other is the appeal that biological conceptions3x201d have for many economists particularly when their focus is on economic change

fuzzy inductive reasoning expectation formation and the behavior of security prices abstract this paper extends the santa fe artificial stock market model sfasm studied by lebaron arthur and palmer 1999 journal of economic dynamics and control 23 1487 1516 in two important directions first some might question whether it is reasonable to assume that traders are capable of handling a large number of rules each with numerous conditions as is assumed in the sfasm we demonstrate that similar results can be obtained even after severely limiting the reasoning process we show this by allowing agents the ability to compress information into a few fuzzy notions which they can in turn process and analyze with fuzzy logic second lebaron et al have reported that the kurtosis of their simulated stock returns is too small as compared to real data we demonstrate that with a minor modification to how traders go about deciding which of their prediction rules to rely on when making demand decisions the model can in fact produce return kurtosis that is comparable to that of actual returns data

racetrack betting and informed behavior abstract horse racing data permit interesting tests of attitudes toward risk the present paper studies a new sample of racetrack results from atlantic city new jersey the questions examined are 1 are the market odds the best data for predicting the order of finish 2 do horses go off at odds that reflect their true probability of winning 3 is there any evidence that late bettors have better information than early bettors it is found that market odds predict the order of finish well but that favorites are good bets and long shots are poor ones the data suggest that there does exist an informed class of bettors and that bettors are on the whole neither risk neutral nor risk averse

an examination of the determinants of biased behaviour in a market for state contingent claims we develop a model to explain the differential incidence of the favourite longshot bias in parallel sectors of the pari mutuel horserace betting market hypotheses are derived from the model and these are tested using uk data to explore the origins of the bias significant variations in the bias are discovered between market sectors on and off racetrack these results shed light on competing demand side explanations for the favourite longshot bias and suggest that it is affected by a combination of behavioural and operational features of the markets and the types of bettors informed and leisure which they attract

the relationship between two indicators of insider trading in british racetrack betting this paper examines whether a measure of insider trading in betting markets derived from the shin 1993 model is significantly related in samples of horse and greyhound races to an alternative independently derived indicator of insider activity suggested by crafts 1985 namely plunges in the odds offered against a particular competitor on the day of a race the analysis suggests that there is a significant relationship

market efficiency and the favorite longshot bias the baseball betting market this paper examines the efficiency of the legal gambling market for major league baseball weak form tests of market efficiency within and across odds lines are performed surprisingly the consistently observed favorite longshot bias in racetrack betting is shown to exist in reverse for baseball bettors however these and other deviations from efficiency are shown to be insufficient to allow for profitable betting strategies when commissions are considered

testing risklove in an experimental racetrack abstract this paper tests the asch quandt betting hypothesis which accounts for the ubiquitous underbetting overbetting favourite longshot phenomenon found at most racetracks by postulating that horserace wagering is a consumption activity an experimental racetrack was designed with only off track betting permissible thereby eliminating much or all of the consumption involved but the basic anomaly remained and in a somewhat stronger form it is hypothesized that the observed betting behaviour of our subjects is consistent with prospect theory and its two outcome equivalent rank dependent expected utility theory

north south trade and exported led policies abstract an earlier paper in this journal chichilnisky 1981 formulated a model of north south trade where the south exports a labor intensive commodity in exchange for industrial goods the paper studied moves to new equilibria with higher levels of exports of the south and of industrial demand in the north it was established that with abundant labor and technological dualism such moves lead to more exports but no lower terms of trade consumption and real wages in the south this occurs within walrasian stable and perfectly competitive markets sufficient conditions were also given for the south to improve its terms of trade real wages and consumption through an export expansion this paper comments on several other papers written on these results generalizes the earlier propositions and extends them to a larger class of economies which export labor intensive products but need not have abundant labor it gives a generalization of the earlier results on uniqueness and stability of the equilibria and reports also on recent econometric tests for sri lanka and the u k and numerical simulations of the model

selling to biased believers strategies of online lottery ticket vendors i introduction do sellers in the marketplace take advantage of the belief biases of their consumers models of markets typically assume that sellers are profit maximizing consumers are utility maximizing and both sides of the market have accurate unbiased beliefs however an increasing collection of evidence shows that the presence of cognitive and strategic heterogeneity can account for many stylized facts in the marketplace which appear puzzling when confined to the framework of classical models we examine the behavior of sellers in a popular online market which provides an unusual opportunity to identify seller exploitation of biased beliefs held by buyers the chinese collective lottery betting market in this market shares of ticket portfolios for china s national lottery are sold commissions are charged by the sellers and the success rates of sellers are made public as in most state run lotteries success is completely random with known probabilities that are independent of previous outcomes these objective probabilities allow us to cleanly detect deviations from rational beliefs among buyers and assess the corresponding responses by sellers in the market to these demand shocks of buyers we find evidence that sellers cater to the biased beliefs of lottery ticket buyers by tailoring certain features of their portfolio product specifically collective lottery portfolio sellers adjust their sales strategies in response to demand fluctuations that are driven by buyers biased beliefs about the correlation of past and future lottery outcomes lottery ticket buyers tend to purchase tickets with numbers which have not recently won in accordance with previous evidence of the gambler s fallacy in lottery sales clotfelter and cook 1993 terrell 1994 ticket buyers also tend to purchase tickets from those ticket sellers who have recently experienced an exogenous increase in their win rates in accordance with previous evidence of the hot hand fallacy croson and sundali 2005 guryan and kearney 2008 1 we find combined evidence that lottery portfolio sellers take advantage of buyers belief in the hot hand fallacy in the following ways 1 directly following a previous win in their portfolio sellers increase their commission rate charged to the buyers to be collected as a percentage of the lottery winnings sellers are thus able to collect more commission money from the buyers conditional on winning 2 sellers offer portfolios of larger value and more ticket coverage directly following a large win in their portfolio using this strategy sellers increase their chances of holding a winning ticket in the current round as well as being able to collect more commission money conditional on winning 3 sellers self invest less in their own portfolios after a large win when their popularity among buyers in the market is high by purchasing a lower share of their portfolios on their own sellers are able to obtain a larger expected return without investing their personal money we also find some evidence consistent with lottery ticket sellers adapting to buyers belief in the gambler s fallacy first sellers generally tend to offer lottery number portfolios which are numerically dissimilar to recent winning tickets thus appealing to buyers with gambler s fallacy beliefs although the more numerically dissimilar the portfolio is to the previous winning ticket the less the seller himself invests in it sellers who have proposed very similar numbers compared to the previous winning ticket on the other hand self invest more thus entering the lottery with higher expected returns under the pari mutuel prize structure this self investment pattern is not consistent with the alternative story that sellers themselves subscribe equally to the gambler s fallacy compared to buyers our paper is unique to the existing evidence in this area in that we are the first to our knowledge to study sellers responses to consumers probabilistic belief biases specifically the gambler s fallacy and hot hand fallacy

the pricing of japanese equity warrants discrepancies between the black scholes value of japanese equity warrants and their observed prices are explained in part by the stochastic volatility of changes in prices of the underlying stocks we fit garch and egarch models to the stochastic volatility and briefly compare their performance to the cev model a hopscotch algorithm is used to value the warrants in the presence of the stochastic stock price volatility the stochastic volatility hopscotch warrant values still differ substantially from corresponding prices in contrast away from the money short term nikkei 225 options valued with the same stochastic volatility models are close to observed prices a regression model is used to fit the differences between warrant values and prices as a function of proxies for market impediments

insider trading herding behaviour and market plungers in the british horse race betting market crafts n f r crafts 1985 economica 52 295 304 suggested that a pronounced shortening of bookmaker odds in horse race betting markets could indicate the presence of insider traders this paper uses the shin h s shin 1993 economic journal 103 1141 53 measure of the incidence of insider trading at the beginning of the betting period opening prices and at the end of it starting prices to distinguish the shortening of odds caused by insider trading from that caused by herding behaviour it turns out that significant positive betting returns are achieved when shortening odds are accompanied by a rise in the shin measure when they are accompanied by a fall returns are negative suggesting herd behaviour

recreational versus professional bettors performance differences and efficiency implications using a novel dataset which allows comparisons across heterogeneous sub groups of pari mutuel bettors we demonstrate significant behaviour and performance distinctions between recreational and professional investors professionals ability to earn abnormal returns on short odds horses in high volume markets challenges the existing empirical consensus which offers very limited evidence of betting market inefficiency the results offer important lessons for betting operators and regulators and highlight the potential for similar avenues of investigation in other speculative markets

the favourite longshot bias in parimutuel betting a clarification of the explanation that bettors like to bet longshots abstract one explanation of the favourite longshot bias in parimutuel betting is that bettors derive utility from betting longshots the purpose of this paper is to explore the conditions where such an explanation makes sense we posit a simple two horse race where there are two groups of bettors one group always bets the longshot the other bets on the basis of expected value the model yields two results in the absence of transactions costs track take there is no favourite longshot bias however if the track take is positive we would expect to observe the bias the primary reason is that there is no short selling mechanism in parimutuel betting markets hence the explanation that bettors like to bet longshots also requires transactions costs and no short selling

searching for the favourite longshot bias down under an examination of the new zealand pari mutuel betting market this paper tests for the presence of the favourite longshot bias in a new setting this bias 150 the tendency for bettors to underbet favourites and overbet longshots 150 has been found in most studies of pari mutuel and bookmaking betting markets in the usa the uk and australia however there is growing evidence that in at least some pari mutuel betting markets there is no favourite longshot bias this paper examines the previously unexplored new zealand pari mutuel betting market on horse races for evidence of this bias utilizing a large sample of recent new zealand thoroughbred horse races it is found that while early off track bettors price this bias into odds late on and off track bettors eliminate much of the bias by the close of betting that is the results reinforce the view that not all pari mutuel betting markets are characterized by a favourite longshot bias at the close of betting evidence is also found that late bettors in this market are smart bettors