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Betting, Selection, and Luck: A Long-Run Analysis of Repeated Betting Markets

Institute of Economics & Department EMbeDS, Scuola Superiore Sant’Anna, Piazza Martiri della Libertà 33, 56127 Pisa, Italy
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Entropy 2019, 21(6), 585; https://doi.org/10.3390/e21060585
Received: 15 March 2019 / Revised: 27 May 2019 / Accepted: 11 June 2019 / Published: 13 June 2019
We consider a repeated betting market populated by two agents who wage on a binary event according to generic betting strategies. We derive new simple criteria, based on the difference of relative entropies, to establish the relative wealth of the two agents in the long-run. Little information about agents’ behavior is needed to apply the criteria: it is sufficient to know the odds traders believe fair and how much they would bet when the odds are equal to the ones the other agent believes fair. Using our criteria, we show that for a large class of betting strategies, it is generically possible that the ultimate winner is only decided by luck. As an example, we apply our conditions to the case of Constant Relative Risk Averse (CRRA) and quantal response betting. View Full-Text
Keywords: bounded rationality; betting strategies; market selection; recurrent processes; luck bounded rationality; betting strategies; market selection; recurrent processes; luck
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Bottazzi, G.; Giachini, D. Betting, Selection, and Luck: A Long-Run Analysis of Repeated Betting Markets. Entropy 2019, 21, 585.

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