While most empirical analysis of prediction markets treats prices of binary options as predictions of the probability of future events, Manski (2004) has recently argued that there is little existing theory supporting this practice. We provide relevant analytic foundations, describing sufficient...

We explain the size and the existence of the mutual fund industry by generalizing the standard competitive noisy rational expectations framework with endogenous information acquisition. Since informed agents optimally choose to open mutual funds in order to sell their private information, mutual...