Marco Ottaviani

Kellogg School of Management

Northwestern University

2001 Sheridan Road

Evanston, IL 60208-2013



Email: m-ottaviani AT northwestern DOT edu


Phone: +1 847-467-0684

Fax: +1 847-467-1777

Welcome! I am professor of Management and Strategy at the Kellogg School of Management, Northwestern University.

I also act as co-editor of the B.E. Journal of Theoretical Economics, and serve as member of the editorial board of the Review of Economic Studies and the Journal of Prediction Markets.

This page collects links to my papers:

Recent Working Papers

Search Agency, with Tracy R. Lewis.

How should a principal provide agents with incentives to conduct sequential search?


Aggregation of Information and Beliefs in Prediction Markets, with Peter Norman Sørensen.

Equilibrium analysis of a prediction market when traders have heterogeneous priors and private information. When agents can invest a limited amount of money in this market (or their absolute risk aversion is decreasing in wealth), the equilibrium price under-reacts to information.


Noise, Information, and the Favorite-Longshot Bias in Parimutuel Predictions, with Peter Norman Sørensen, peer reviewed by NAJ Economics 2005, 11:3.

Testable implication for the sign and extent of favorite-longshot bias depending on the information to noise ratio present in the market, as affected by the number of bettors, the number of outcomes, the amount of private information, the level of participation generated by recreational interest in the event, the divisibility of bets, the presence of ex post noise, as well as ex ante asymmetries across outcomes.


The Timing of Parimutuel Bets, with Peter Norman Sørensen.

Timing of parimutuel bets driven by two incentives: bettors want to place large early bets to pre-empt the rivals, but also want to wait to conceal information.


Parimutuel versus Fixed-Odds Markets, with Peter Norman Sørensen.

Comparison of equilibrium outcomes in parimutuel and fixed-odds competitive markets with privately informed bettors.


Forecasting and Rank-Order Contests, with Peter Norman Sørensen.

Characterization of equilibrium in Hotelling location model with private information, with applications to strategic forecasting and political economy.


Published Papers

Surprised by the Parimutuel Odds? , with Peter Norman Sørensen, American Economic Review, forthcoming.

The favorite-longshot bias observed in parimutuel markets is consistent with the use of private information by bettors taking simultaneous positions. The ex post realization of a high market probability indicates favorable information about the occurrence of an outcome---and the opposite for longshots.


Misselling through Agents, with Roman Inderst, American Economic Review, forthcoming.

How to incentivize sales agents to sell, but not to “missell” to customers for whom the product is unsuitable? Analysis of the internal organization of the sales process, the commitment effect of transparency of commissions, and the role for self regulation and policy intervention.


Information Sharing in Common Agency: When is Transparency Good?, with Norbert Maier, Journal of the European Economic Association, forthcoming.

When should principals dealing with a common agent share their individual performance measures about the agent's unobservable effort?


Monopoly Pricing in the Binary Herding Model, with Subir Bose, Gerhard Orosel and Lise Vesterlund, Economic Theory, November 2008, 37(2): 203–241. [preprint]

Full characterization of monopoly prices and learning dynamics when buyers have binary signals about the quality of the good sold and observe the history of past purchases.


The Promise of Prediction Markets, with Kenneth J. Arrow, Robert Forsythe, Michael Gorham, Robert Hahn, Robin Hanson, John O. Ledyard, Saul Levmore, Robert Litan, Paul Milgrom, Forrest D. Nelson, George R. Neumann, Thomas C. Schelling, Robert J. Shiller, Vernon L. Smith, Erik Snowberg, Cass R. Sunstein, Paul C. Tetlock, Philip E. Tetlock, Hal R. Varian, Justin Wolfers, and Eric Zitzewitz, Science, 16 May 2008, 320(5878), 877878. [preprint]

The ability of groups of people to make predictions is a potent research tool that should be freed of unnecessary government restrictions.


Bank Mergers and Diversification: Implications for Competition Policy, with Albert Banal Estanol, European Financial Management, June 2007, 13(3), 578–590. [preprint]

Risk-averse banks first merge and then compete in the markets for loans and deposits, in the presence of interest rate risk and default risk for individual loans. If depositors have more correlated shocks than borrowers, bank mergers are relatively worse for depositors than for borrowers.


Credulity, Lies, and Costly Talk, with Navin Kartik and Francesco Squintani, Journal of Economic Theory, May 2007, 134 (1), 93–116. [preprint]

Language inflation and deception result when either the receiver is credulous or the sender finds it costly to misrepresent information (due to legal, technological, or moral constraints)—subsumes the first part of working paper “Non-Fully Strategic Information Transmission.”


Outcome Manipulation in Corporate Prediction Markets, with Peter Norman Sørensen, Journal of the European Economic Association, Papers and Proceedings, April–May 2007, 5(2–3), 554–563.

Analysis of the amount of outcome manipulation (and impact on prices) resulting in a simple model of a corporate prediction market.


Naive Audience and Communication Bias, with Francesco Squintani, International Journal of Game Theory, December 2006, 35 (1), 129–150. [preprint]

The amount of information that is revealed to strategic receivers increases in the fraction of naive receivers and in the informational advantage of the sender, whereas it decreases in level of the conflict of interest—supersedes the second part of working paper “Non-Fully Strategic Information Transmission.”


Dynamic Monopoly Pricing and Herding, with Subir Bose, Gerhard Orosel and Lise Vesterlund, RAND Journal of Economics, Winter 2006, 37 (4), 912–930.

Dynamic pricing by a monopolist selling to buyers who learn from each other’s purchases, with implications for herd behavior and welfare.


Mergers with Product Market Risk, with Albert Banal Estanol, Journal of Economics & Management Strategy, Fall 2006, 15(3), 577–608. [preprint]

Strategic implications of risk sharing in mergers, with predictions for the method of payment used (cash versus shares).


The Strategy of Professional Forecasting, with Peter Norman Sørensen, Journal of Financial Economics, August 2006, 81(2), 441–466. [preprint]

Framework for modeling strategic behavior of professional forecasters: (1) Concern for perceived talent leads to excessive conformity if the market is naive and loss of information if the market is rational. (2) Competition for best accuracy leads to excessive forecast differentiation.


Reputational Cheap Talk, with Peter Norman Sørensen, RAND Journal of Economics, Spring 2006, 37(1), 155–175. [preprint]

Communication by an expert concerned about appearing to be well informed, part II—general analysis with focus on incentives to deviate from truthtelling, effect of self-knowledge of information quality, and multiple experts speaking simultaneously.

[Supplementary Material on Reputational Cheap Talk: Deviation Incentives, Interim Evaluation and Mixed Objectives]


Professional Advice, with Peter Norman Sørensen, Journal of Economic Theory, January 2006, 126(1), 120–142. [preprint]

Communication by an expert concerned about appearing to be well informed, part I—analysis of tractable example with focus on characterization of equilibrium, comparative statics, and multiple experts speaking sequentially.


The Transition to Digital Television, with Jerome Adda, Economic Policy, January 2005, 41, 160–209. [pre-panel draft, presentation slides]

Conceptual and empirical framework for evaluating policies for the transition from analogue to digital television.


Price Competition for an Informed Buyer, with Giuseppe Moscarini, Journal of Economic Theory, December 2001, 101(2), 457–493.

Analysis of competition for a buyer with private information on the relative quality of the sellers, with a Hotelling reinterpretation and comparative statics with respect to buyer’s private information and public information.


The Value of Public Information in Monopoly, with Andrea Prat, Econometrica, November 2001, 69(6), 1673–1683. [earlier draft with additional examples]

When does a price-discriminating monopolist want to reveal public information to its buyers? The linkage principle meets mechanism design by an informed principal.


Information Aggregation in Debate: Who Should Speak First?, with Peter Sørensen, Journal of Public Economics, September 2001, 81(3), 393–421.

Dynamics of group think in a committee with members concerned about their reputation for expertise, with implications for the organization of debate.


Herd Behavior and Investment: Comment, with Peter Sørensen, American Economic Review, June 2000, 90(3), 695–704.

Paper (i) uncovers the close connection between reputational and statistical herding and (ii) shows that reputational cascades also result when better informed agents do not have access to signals that are more positively correlated conditional on the state.


Social Learning in a Changing World, with Giuseppe Moscarini and Lones Smith, Economic Theory, 1998, 11(3), 657–665.

Only temporary informational cascades can arise if the state of the world is changing stochastically over time during the learning process.

Older Working Papers

Contracts and Competition in the Pay-TV Market, with David Harbord.

How is downstream competition affected by the contractual terms used to sell essential inputs to competitors?


The Economics of Advice.

Analysis of issues relevant for regulation of independent financial advisers: communication to unsophisticated audience, information acquisition by advisers, uncertainty about the conflict of interest, and optimal incentive design.

Other Publications

The Favorite-Longshot Bias: An Overview of the Main Explanations, with Peter Norman Sørensen, forthcoming in Handbooks in Finance: Handbook of Sports and Lottery Markets, edited by William T. Ziemba and Donald B. Hausch, Elsevier North Holland.


Switching to Digital Television: Business and Public Policy Issues, with Norbert Maier, in Standard and Public Policy, edited by Victor Stango and Shane Greenstein, Cambridge University Press, 2006, 345-371.


Anti-Competitive Contracts in the UK Pay-TV Market, with David Harbord, European Competition Law Review, March 2002, 23(3), 122-126.


Economic Models of Social Learning, with Giuseppe Moscarini, Chapter 11 in “Decisions, Games and Markets,” edited by Pierpaolo Battigalli, Aldo Montesano and Fausto Panunzi, Kluwer Academic Publishers, 1997, 265-298.

Teaching Cases

Cross Border Electricity Trading and Market Design: The England-France Interconnector, with Roman Inderst. [email me to receive the Teaching Note]


Overture and Google: Internet Advertising Pay-Per-Click Auctions, with Andrew Ellam.

Policy Reports

Microeconomic Assessment of the Home Buying Offer and Contract Process, with Roman Inderst.