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Bargaining over bets

Eliaz, K; Spiegler, R; (2009) Bargaining over bets. GAME ECON BEHAV , 66 (1) 78 - 97. 10.1016/j.geb.2008.06.001. Green open access

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Abstract

When two agents hold different priors over an unverifiable state of nature, which affects the outcome of a game they are about to play, they have an incentive to bet on the game's outcome. We pose the following question: what are the limits to the agents' ability to realize gains from such speculative bets when their priors are private information? We apply a "mechanism design" approach to this question. We characterize interim-efficient bets and discuss their implementability in terms of the underlying game's payoff structure. In particular, we show that as the costs of unilaterally manipulating the bet's outcome become more symmetric across states and agents, implementation becomes easier. (C) 2008 Elsevier Inc. All rights reserved.

Type: Article
Title: Bargaining over bets
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.geb.2008.06.001
Keywords: Speculative trade, Mechanism design, Bets, Pre-game contracts, Non-common priors, Optimism, MECHANISMS, EFFICIENCY, TRADE
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/17323
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