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Bookmaker and Pari-Mutuel Betting: Is a (Reverse) Favourite-Longshot Bias Built-In?

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Author Info

  • Alexander K. Koch
  • Hui-Fai Shing

Abstract

A widely documented empirical regularity in gambling markets is that bets on high probability events (a race won by a “favourite”) have higher expected returns than bets on low probability events (a “longshot” wins). Such favourite-longshot (FL) biases however appear to be more severe and persistent in bookmaker markets than in pari-mutuel markets; the latter sometimes exhibit no bias or a reverse FL bias. Our results help understand these differences: the odds grid in bookmaker markets leads to a built-in FL bias, whereas that used in pari-mutuel betting pushes these markets toward a reverse FL bias.

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File URL: http://www.ingentaconnect.com/content/ubpl/jpm/2008/00000002/00000002/art00003
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Bibliographic Info

Article provided by University of Buckingham Press in its journal Journal of Prediction Markets.

Volume (Year): 2 (2008)
Issue (Month): 2 (September)
Pages: 29-50

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Handle: RePEc:buc:jpredm:v:2:y:2008:i:2:p:29-50

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Web: http://www.predictionmarketjournal.com/index_files/Page418.htm

Related research

Keywords: GAMBLING; FAVOURITE-LONGSHOT BIAS; BOOKMAKER BETTING; PARIMUTUEL BETTING; BREAKAGE; TICK SIZE;

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