Risk-Corrected Probabilities of a Binary Event

We obtain risk-neutral probabilities of the Brexit referendum using data from both the optionsand prediction markets. We then provide a risk-corrected measure of these probabilities usingboth non-parametric and parametric methods. While former correction marginally changes therisk-neutral probability, the effect of the latter depends on relative wealth calibration and riskpreferences. We estimate subjective Brexit probabilities from past opinion polls and providedaily estimates of voting intention to leave from the BES survey. By comparing the subjectiveprobabilities with our risk-corrected measures, our results show that both FX option andprediction market participants are likely to reveal moderate risk-seeking preferences before theBrexit referendum.