Determination of Odds in Prediction Markets: Coexistence of Posted-offer and Double-auction Designs

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Published: Jul 31, 2015
DOI: https://doi.org/10.5750/jpm.v9i1.1004
Keywords:
Prediction markets posted-offer double-auction.

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Levent Celik
National Research University Higher School of Economics
Esen Onur
Commodity Futures Trading Commission

Abstract

This paper studies the coexistence of two competing mechanisms in the same market, where one follows the posted-offer rule and the other one incorporates a double-auction mechanism. We explore this coexistence within a sports betting example in which bettors are free to choose between a bookie (posted-offer market) and a betting exchange. Our findings imply that i) bettors' risk aversion parameter is instrumental in whether these two mechanisms coexist or not, ii) most bettors are strictly better off, and none is worse off, when they have access to both of these competing mechanisms rather than just one, and iii) these results hold even when we allow the bookie to make a positive profit instead of following a zero expected profit pricing rule.

Article Details

Issue
Vol. 9 No. 1 (2015)
Section
Articles
Author Biography

Levent Celik, National Research University Higher School of Economics

Assistant Professor of Economics

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