Risk Aversion , Beliefs , and Prediction Market Equilibrium

  title={Risk Aversion , Beliefs , and Prediction Market Equilibrium},
  author={Steven Gjerstad},
Manski [2004] analyzes the relationship between the distribution of traders' beliefs and the equilibrium price in a prediction market with risk neutral traders. He finds that there can be a substantial difference between the mean belief that an event will occur, and the price of an asset that pays one dollar if the event occurs and otherwise pays nothing. This result is puzzling, since these markets frequently produce excellent predictions. This paper resolves the apparent puzzle by… CONTINUE READING
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