ABSTRACT
Market ecology embodies characteristics that define the setting for transactions, including the market form, its processes and protocols, information and incentive characteristics, and the form of buyer-supplier relationships and communication. The aim of this chapter is to investigate the influence of aspects of market ecology on behaviour within markets, specifically to develop an understanding of the role of market ecology in explaining the differential incidence of a well-established anomaly in markets for state-contingent claims. The anomaly in question, discussed in greater detail below, relates to the tendency for subjective probabilities to underestimate systematically the objective probability of high probability outcomes and to overestimate the probability of low probability events.
