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Painful Regret and Elation at the Track

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  • Adi Schnytzer

    (Department of Economics, Bar-Ilan University)

  • Barbara Luppi

Abstract

We present an empirical study of loss aversion in the Hong Kong horse betting market. We provide evidence of the presence of loss aversion in a context of complete absence of the favourite-longshot bias. This would suggest that, since loss aversion is a psychological bias, the favourite-longshot bias may not necessarily be caused by psychological issues and may be due, for instance, to informational asymmetry. We investigate different types of bettors and their attitude towards loss aversion. Our data set enables us to distinguish approximately among insiders, unsophisticated outsiders and sophisticated outsiders. The results show clearly that even sophisticated bettors are beset by loss aversion, while even unsophisticated outsiders display no favourite-longshot bias. Thus, our paper provides evidence that loss aversion may be an attitude innate rather than learned, regardless of the level of sophistication in designing economic behaviour or the extent of information asymmetry. Chen et al (2006) show that capuchin monkeys display biases when faced with gambles, including loss aversion, and provide evidence that loss aversion extends beyond humans. The present work supports the idea that loss aversion may be a more universal bias, arising regardless of experience and culture and demonstrates that loss aversion is displayed even by those bettors regarded in the market as “smart money”. Further, we find that more sophisticated and experienced bettors display a higher level of loss aversion. This result is consistent with the findings of Haigh and List (2005), who show that professional traders in financial markets exhibit more loss aversion than do students.

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Bibliographic Info

Article provided by University of Buckingham Press in its journal Journal of Gambling Business and Economics.

Volume (Year): 2 (2008)
Issue (Month): 3 (December)
Pages: 85-99

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Handle: RePEc:buc:jgbeco:v:2:y:2008:i:3:p:85-99

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  1. Avichai Snir & Daniel Levy, 2011. "Shrinking Goods and Sticky Prices: Theory and Evidence," Working Paper Series 17_11, The Rimini Centre for Economic Analysis.
  2. Ronen Bar-El & Teresa García-Muñoz & Shoshana Neuman & Yossef Tobol, 2010. "The Evolution of Secularization: Cultural Transmission, Religion and Fertility Theory, Simulations and Evidence," Working Papers 2010-10, Department of Economics, Bar-Ilan University.
  3. Sourav Ray & Haipeng (Allan) Chen & Mark Bergen & Daniel Levy, 2005. "Asymmetric Wholesale Pricing: Theory and Evidence," Working Papers 2005-02, Department of Economics, Bar-Ilan University.
  4. Daniel Levy & Hainpeng (Allan) Chen & Sourav RayAuthor-Name: Mark Bergen, 2004. "Asymmetric Price Adjustment in the Small: An Implication of Rational Inattention," Emory Economics 0408, Department of Economics, Emory University (Atlanta).
  5. Matthew Higgins & Daniel Levy & Andrew Young, 2005. "Growth and Convergence across the US: Evidence from County-Level Data," Macroeconomics 0505009, EconWPA.
  6. Daniel Levy & Georg Muller & Shantanu Dutta & Mark Bergen, 2004. "Holiday Price Rigidity and Cost of Price Adjustment," Macroeconomics 0402019, EconWPA, revised 10 Jun 2005.
  7. Andrew Young & Matthew Higgins & Daniel Levy, 2005. "Sigma-Convergence Versus Beta-Convergence: Evidence from U.S. County-Level Data," Macroeconomics 0505008, EconWPA.
  8. Leonid V. Azarnert, 2011. "Integrated Public Education, Fertility and Human Capita," Working Papers 2011-24, Department of Economics, Bar-Ilan University.
  9. Ravi Kanbur & Hillel Rapoport, 2004. "Migration Selectivity and the Evolution of Spatial Inequality," Working Papers 2004-04, Department of Economics, Bar-Ilan University.
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