‘It ain’t over till it's over.’ Yogi Berra bias on prediction markets
The recent expansion of prediction markets provides a great opportunity to test the market efficiency hypothesis and the calibration of trader judgements. Using a large database of observed prices, this article studies the calibration of prediction markets prices on sporting events using both nonparametric and parametric methods. While only minor bias can be observed during most of the lifetime of the contracts, the calibration of prices deteriorates very significantly in the last moments of the contracts’ lives. Traders tend to overestimate the probability of the losing team to reverse the situation in the last minutes of the game.
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Document Type: Research Article
Affiliations: Westminster Business School, University of Westminster, 35 Marylebone Road, NW1 5LSLondon, UK
Publication date: 2012-01-01