Leighton Vaughan Williams

The Growth of Gambling and Prediction Markets: Economic and Financial Implications

In recent years, there has been a substantial global increase in gambling and prediction markets, including casinos, sports betting, lotteries, elections and wagering on financial instruments. This trend has heightened interest in numerous economic and financial issues related to this sector. These include questions relating to the efficiency of these markets, heterogeneity in risk attitudes among economic agents, and the use of prediction markets in policy analysis. The papers in this special issue provide a mix of theoretical and empirical evidence on these issues.

Prediction Markets, Social Media and Information Efficiency

We consider the impact of breaking news on market prices. We measure activity on the micro‐blogging platform Twitter surrounding a unique, newsworthy and identifiable event and investigate subsequent movements of betting prices on the prominent betting exchange, Betfair. The event we use is the Bigotgate scandal, which occurred during the 2010 UK General Election campaign. We use recent developments in time series econometric methods to identify and quantify movements in both Twitter activity and Betfair prices, and compare the timings of the two. We find that the response of market prices appears somewhat sluggish and is indicative of market inefficiency, as Betfair prices adjust with a delay, and there is evidence for post‐news drift. This slow movement may be explained by the need for corroborating evidence via more traditional forms of media. Once important tweeters begin to tweet, including importantly breaking news Twitter feeds from traditional media sources, prices begin to move.

Productivity Measurement in Gambling: Plant-Level Evidence from Gambling Establishments in the United Kingdom

There have been numerous studies of the impact of investment in information technology (IT) on manufacturing productivity (e.g., Brynjolfsson and Hitt (1996)) and Morrison (1997)), but little evidence on this relationship in services. We attempt to fill this gap, by analyzing the impact of IT on the relative productivity of gambling establishments. Ours is also the first empirical study of productivity in gambling, one of the fastest growing industries in the service sector. The econometric analysis is based on data from the Annual Respondents Database (ARD) file, consisting of individual establishment records from the U.K. Annual Census of Production. The ARD file contains detailed data on output, materials, energy, employment, and numerous plant and firm characteristics and is quite similar to the U.S.-based Longitudinal Research Database (LRD). Production function models provide an excellent fit to the data, yielding plausible elasticity estimates and indicating constant returns to scale. More importantly, we find that gambling establishments investing more heavily in computers are more productive than comparable establishments.