Alistair Bruce of the University of Nottingham examines individual motivations for betting, synthesizing perspectives from economics, psychology, and sociology. His results have important implications for policy makers designing legal and regulatory regimes for betting as well as for those interested in treating the negative effects of “excessive” exposure to betting.
The next chapter, by Les Coleman of the University of Melbourne, examines a variety of characteristics of betting markets. He focuses on comparing betting markets to financial markets and then assesses the motivations for gambling. In a similar vein David McDonald, Johnnie Johnson, and Ming-Chien Sung of the University of Southampton present evidence of biased decision-making in betting markets.
An interesting aspect of their research is that they demonstrate how systematic biases that were first identified in the laboratory are reflected in real-world gambling behavior. Greg Durham of Montana State University examines sports betting, and specifically point spread wagering, through the lens of “behavioral finance,” which draws heavily from psychology. xviii introduction vi Prediction Markets and Political Betting.
David Johnstone of the University of Sydney examines the question of the predictability of sports betting markets based on a simple automated “market maker” for prediction markets. He notes that there is great potential for the use of automated “robot” market makers in prediction markets and market simulation games, based on research in experimental economics and behavioral finance. He outlines the benefits of adopting such an approach in terms of two key advantages: (1) the model is easy to derive and (2) the opening security price can be set arbitrarily between zero and one, so as to match the market maker’s prior beliefs.
The next chapter, by Paul Rhode of the University of Michigan and Koleman Strumpf of the University of Kansas, describes the long history of political betting markets. Contrary to popular wisdom, political futures markets are not a recent invention. The authors trace the operation of political futures markets back to sixteenth-century Italy, eighteenth-century Britain and Ireland, nineteenth-century Canada, and twentiethcentury Australia and Singapore. They also note that election wagering was quite popular in the United States in the pre-1860 period but during the post-1860 period became increasingly concentrated in the organized futures markets in New York City.