Assessing bettors' ability to process dynamic information: Policy implications

Regulation is often employed to encourage the provision of readily interpretable, explicitinformation to betting markets in an effort to promote their efficiency. This approach issupported by a considerable volume of laboratory-based research which suggests that individualsmake poor judgments in the face of implicit, dynamic information. This article investigates towhat extent horserace bettors, who have strong incentives to make good probability judgments,require the regulator’s protection from such hostile information environments. In particular, weexamine the accuracy of the subjective probabilities of bettors concerning 16,344 horses in 1671races. We find that bettors are skilled in adopting effective heuristics to simplify their dynamicinformation environment and, even in the face of restricted information, develop well-calibratedjudgments using outcome feedback. A number of factors that help bettors to achieve goodcalibration are identified and the implications for market regulation are discussed

The potential for underinvestment in internet security: implications for regulatory policy

With the continuing growth of the use of the Internet for business purposes, the consequences of a possible cyber attack that could create a large scale outage of long time duration becomes a more and more serious economic issue. In this paper, we construct a game-theoretic model that addresses the economic motivations for investment in added Internet security and makes a case for a possible market failure in the form of underinvestment in the provision of Internet security. This result relies on the fact that the social value derived from consumption (which is at least equal to a fraction of the surplus derived from e-commerce) greatly exceeds the revenue at stake associated with the telecommunications companies’ and ISP’s security levels. If the ratio of social value to revenue at stake to Internet providers continues to grow, the likelihood of underinvestment in security becomes higher and some form of regulation may become necessary. We discuss the difficulties associated with designing and enforcing a regulatory scheme based upon mandatory security standards. Copyright Springer Science+Business Media, LLC 2007Internet Security, Market Failure, Game Theory, Nash Equilibrium, Markov perfect equilibrium, L51, L86, C72, C73, K23,

Mandated self-regulation: the danger of cosmetic compliance

Regulation, Environmental management systems, Misrepresentation, D62, K32, Q58,