IDEAS home Printed from https://ideas.repec.org/a/eee/beexfi/v23y2019icp181-188.html
   My bibliography  Save this article

Extending the price constraints of betting markets

Author

Listed:
  • Axén, Gustav
  • Cortis, Dominic

Abstract

The no-arbitrage conditions on betting markets are well-known and a prerequisite for the market to adhere to elementary rationality assumptions. In this paper, we also apply the criteria that no asset should be dominated if the pricing is rational, and show that the market odds need to adhere to additional constraints to account for this. Our developments illustrate an important difference between the cases of back and lay bets that, remarkably, is resolved with analogous results. The novel results can be used as constraints in modeling of betting markets, an aid in optimizing betting portfolios, or as empirical tests of bettor rationality.

Suggested Citation

  • Axén, Gustav & Cortis, Dominic, 2019. "Extending the price constraints of betting markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 23(C), pages 181-188.
    • Handle: RePEc:eee:beexfi:v:23:y:2019:i:c:p:181-188
    DOI: 10.1016/j.jbef.2019.07.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S2214635019300437
    Download Restriction: no
    File URL: https://libkey.io/10.1016/j.jbef.2019.07.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Manski, Charles F., 2006. "Interpreting the predictions of prediction markets," Economics Letters, Elsevier, vol. 91(3), pages 425-429, June.
    2. Sveinung Arnesen & Ole Bergfjord, 2014. "Prediction markets vs polls – an examination of accuracy for the 2008 and 2012 elections," Journal of Prediction Markets, University of Buckingham Press, vol. 8(3), pages 24-33.
    3. Dominic Cortis, 2015. "Expected Values And Variances In Bookmaker Payouts: A Theoretical Approach Towards Setting Limits On Odds," Journal of Prediction Markets, University of Buckingham Press, vol. 9(1), pages 1-14.
    4. repec:reg:rpubli:460 is not listed on IDEAS
    5. Stark, Dudley & Cortis, Dominic, 2017. "Balancing The Book: Is It Necessary And Sufficient?," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 11(1), pages 1-6.
    6. Buhagiar, Ranier & Cortis, Dominic & Newall, Philip W.S., 2018. "Why do some soccer bettors lose more money than others?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 18(C), pages 85-93.
    7. Steven D. Levitt, 2004. "Why are gambling markets organised so differently from financial markets?," Economic Journal, Royal Economic Society, vol. 114(495), pages 223-246, April.
    8. repec:cup:judgdm:v:13:y:2018:i:6:p:501-508 is not listed on IDEAS
    9. repec:cup:judgdm:v:10:y:2015:i:3:p:225-231 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gustav Axén & Dominic Cortis, 2020. "Hedging on Betting Markets," Risks, MDPI, vol. 8(3), pages 1-14, August.
    2. Philip W. S. Newall & Dominic Cortis, 2019. "High-stakes hedges are misunderstood too. A commentary on: “Valuing bets and hedges: Implications for the construct of risk preferenceâ€," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 14(5), pages 605-607, September.
    3. repec:cup:judgdm:v:14:y:2019:i:5:p:605-607 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gustav Axén & Dominic Cortis, 2020. "Hedging on Betting Markets," Risks, MDPI, vol. 8(3), pages 1-14, August.
    2. Philip W. S. Newall & Dominic Cortis, 2021. "Are Sports Bettors Biased toward Longshots, Favorites, or Both? A Literature Review," Risks, MDPI, vol. 9(1), pages 1-9, January.
    3. Justin Wolfers & Eric Zitzewitz, 2006. "Interpreting prediction market prices as probabilities," Working Paper Series 2006-11, Federal Reserve Bank of San Francisco.
    4. Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Long Shot Bias: Is it Risk-Love or Misperceptions?," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 723-746, August.
    5. Angelini, Giovanni & De Angelis, Luca & Singleton, Carl, 2022. "Informational efficiency and behaviour within in-play prediction markets," International Journal of Forecasting, Elsevier, vol. 38(1), pages 282-299.
    6. Arne Feddersen & Brad R. Humphreys & Brian P. Soebbing, 2020. "Casual bettors and sentiment bias in NBA and NFL betting," Applied Economics, Taylor & Francis Journals, vol. 52(53), pages 5797-5806, November.
    7. Hofer, Vera & Leitner, Johannes, 2017. "Relative pricing of binary options in live soccer betting markets," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 66-85.
    8. Goto, Shingo & Yamada, Toru, 2023. "What drives biased odds in sports betting markets: Bettors’ irrationality and the role of bookmakers," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 252-270.
    9. Merz, Oliver & Flepp, Raphael & Franck, Egon, 2021. "Sonic Thunder vs. Brian the Snail: Are people affected by uninformative racehorse names?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 93(C).
    10. Buhagiar, Ranier & Cortis, Dominic & Newall, Philip W.S., 2018. "Why do some soccer bettors lose more money than others?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 18(C), pages 85-93.
    11. Restocchi, Valerio & McGroarty, Frank & Gerding, Enrico & Johnson, Johnnie E.V., 2018. "It takes all sorts: A heterogeneous agent explanation for prediction market mispricing," European Journal of Operational Research, Elsevier, vol. 270(2), pages 556-569.
    12. Bryan C. McCannon, 2015. "Replacement Referees And Nfl Betting Markets," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 9(2), pages 14-26.
    13. Andrew Weinbach & Rodney J. Paul, 2009. "National television coverage and the behavioural bias of bettors: the American college football totals market," International Gambling Studies, Taylor & Francis Journals, vol. 9(1), pages 55-66, April.
    14. Dindo, Pietro & Massari, Filippo, 2020. "The wisdom of the crowd in dynamic economies," Theoretical Economics, Econometric Society, vol. 15(4), November.
    15. Braun, Sebastian & Kvasnicka, Michael, 2008. "Against All Odds? – National Sentiment and Wagering on European Football," Ruhr Economic Papers 42, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    16. Barge-Gil, Andrés & García-Hiernaux, Alfredo, 2019. "Staking plans in sports betting under unknown true probabilities of the event," MPRA Paper 92196, University Library of Munich, Germany.
    17. Siemroth, Christoph, 2014. "Why prediction markets work : The role of information acquisition and endogenous weighting," Working Papers 14-02, University of Mannheim, Department of Economics.
    18. Egon Franck & Erwin Verbeek & Stephan Nüesch, 2011. "Sentimental Preferences and the Organizational Regime of Betting Markets," Southern Economic Journal, John Wiley & Sons, vol. 78(2), pages 502-518, October.
    19. repec:cup:judgdm:v:15:y:2020:i:5:p:863-880 is not listed on IDEAS
    20. Albert N. Link & John T. Scott, 2013. "Private Investor Participation and Commercialization Rates for Government-sponsored Research and Development: Would a Prediction Market Improve the Performance of the SBIR Programme?," Chapters, in: Public Support of Innovation in Entrepreneurial Firms, chapter 11, pages 157-174, Edward Elgar Publishing.
    21. Rodney Paul & Andrew Weinbach, 2012. "Sportsbook pricing and the behavioral biases of bettors in the NHL," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 36(1), pages 123-135, January.

    More about this item

    Keywords

    Betting; Arbitrage; Prediction markets; Dutching; Incomplete market;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:beexfi:v:23:y:2019:i:c:p:181-188. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-behavioral-and-experimental-finance .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.