Partition-dependent Framing Effects in Lab and Field Prediction Markets*

Many psychology experiments show that individually judged probabilities of the same event can vary depending on the partition of the state space (a framing effect called "partitiondependence"). We show that these biases transfer to competitive prediction markets in which multiple informed traders are provided economic incentives to bet on their beliefs about events. We report results of a short controlled lab study, a longer field experiment (betting on the NBA playoffs and the FIFA World Cup), and naturally-occurring trading in macroeconomic derivatives. The combined evidence suggests that partition-dependence can exist and persist in lab and field prediction markets.