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From Aggregate Betting Data to Individual Risk Preferences

Pierre A. Chiappori; Bernard Salanie; Francois Salanie; Amit Gandhi

Title:
From Aggregate Betting Data to Individual Risk Preferences
Author(s):
Chiappori, Pierre A.
Salanie, Bernard
Salanie, Francois
Gandhi, Amit
Date:
Type:
Working papers
Department:
Economics
Permanent URL:
Series:
Department of Economics Discussion Papers
Part Number:
1213-08
Publisher:
Department of Economics, Columbia University
Publisher Location:
New York
Abstract:
As a textbook model of contingent markets, horse races are an attractive environment to study the attitudes towards risk of bettors. We innovate on the literature by explicitly considering heterogeneous bettors and allowing for very general risk preferences, including non-expected utility. We build on a standard single-crossing condition on preferences to derive testable implications; and we show how parimutuel data allow us to uniquely identify the distribution of preferences among the population of bettors. We then estimate the model on data from US races. Within the expected utility class, the most usual specfications (CARA and CRRA) fit the data very badly. Our results show evidence for both heterogeneity and nonlinear probability weighting.
Subject(s):
Economics
Item views:
212
Metadata:
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