- Consulting Editors
- The Employment Impact of Casino Gambling in the U.S.
- The Economics of Casino Taxation
- The Elasticity of Casino Gambling
- The Economics of Asian Casino Gaming and Gambling
- How Does Implementation of a Smoking Ban Affect Gaming?
- Overview of the Economic and Social Impacts of Gambling in the United States
- The Economics Of Online Sports Betting
- The Football Pools
- The Efficiency of Soccer Betting Markets
- The Efficiency of Pelota Betting Markets
- The Lure of the Pitcher: How The Baseball Betting Market Is Influenced By Elite Starting Pitchers
- Information Efficiency in High-Frequency Betting Markets
- On The Long-Run Sustainability of Tote Betting Markets
- The Economics of Racetrack-Casino (Racino) Gambling
- The Modern Racing Landscape and The Racetrack Wagering Market: Components of Demand, Subsidies, and Efficiency
- What Explains The Existence of an Exchange Overround?
- Insider Trading in Betting Markets
- Pricing Decisions and Insider Trading in Fixed-Odds Horse Betting Markets
- Betting on Simultaneous Events and Accumulator Gambles
- A Primer on the Mathematics of Gambling
- The Science and Economics of Poker
- The Kelly Criterion with Games of Chance
- Exploiting Expert Analysis? Evidence from Event Studies in an Information-Rich Market Environment
- Betting Motivation and Behavior
- Motivation in Betting Markets: Speculation, Calculus, or Fun?
- Evidence of Biased Decision-Making in Betting Markets
- Behavioral Finance and Point Spread Wagering Markets
- A Simple Automated Market Maker for Prediction Markets
- The Long History of Political Betting Markets: An International Perspective
- The Efficiency Of Lottery Markets
- The National Lottery
- The Benefits and Costs of Slot Machine Gambling
- The Economics Of Lotteries: A Survey Of The Literature
- The Taxation Of Gambling Machines: A Theoretical Perspective
- Name Index
- General Index
Abstract and Keywords
There is wide scope for reliance on automated “robot” market makers in prediction markets and market simulation games in experimental economics and behavioral finance. The market maker presented here is an alternative to the well-known but less easily understood Hanson market maker. It has the advantage of being easy to derive and makes a good mathematical introduction to the logic of automated bid and ask price–setting in prediction markets. Its main advantage is that the opening security price can be set arbitrarily between zero and one, so as to match the market maker’s prior beliefs. A weakness of the Hanson market maker is that it opens automatically with a uniform prior distribution. In many real-world applications, this is unrealistic and prone to cause the market maker unnecessary trading losses (on average). Common practice, such as in betting markets and over-the-counter financial markets for binaries, is to set opening prices based on expert subjective probabilities.
David Johnstone is Professor in Finance at the University of Sydney Business School.
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