'Passauer Wahlborse': information processing in a political market experiment

We present experimental design and results of the 'Passauer Wahlborse' (PWB), a field experiment encompassing the first political call markets, which was successful in predicting the outcome of the 1994 German Bundestag election. Building on both theoretical and experimental literature, we discuss the determinants of individual trading behaviour in a complex field environment and point at difficulties in analysing the data generated by political market experiments. While previous explanations for the predictive success of political markets - i.e., the 'marginal trader hypothesis' - do not appear wholly convincing, we proffer an alternative that focusses on the role of information costs and show that our findings are consistent with basic tenets from received information economics.