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Behavioral biases in the NFL gambling market: Overreaction to news and the recency bias

Author

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  • Durand, Robert B.
  • Patterson, Fernando M.
  • Shank, Corey A.

Abstract

This paper examines the recency bias and overreaction in the NFL betting market from 2003 to 2017. Consistent with the recency bias, bettors are more likely to bet on teams who have won previous outcomes. We add to the literature and find that the magnitude of prior wins and losses in the previous weeks’ plays a greater importance than the sole outcome of wins and losses in betting behavior. Additionally, our results show that bettors wager 2.1% less on the home team when their first-string quarterback does not play, and 3.1% more on the home team when the visitor’s first-string quarterback does not play, which is consistent with overreaction. Finally, our results show that bookmakers earn “over the odds” thanks to bettors’ quasi-rational behavior as they commit the recency bias.

Suggested Citation

  • Durand, Robert B. & Patterson, Fernando M. & Shank, Corey A., 2021. "Behavioral biases in the NFL gambling market: Overreaction to news and the recency bias," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:beexfi:v:31:y:2021:i:c:s2214635021000666
    DOI: 10.1016/j.jbef.2021.100522
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    Cited by:

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    2. Darville, Joshua & Yavuz, Abdurrahman & Runsewe, Temitope & Celik, Nurcin, 2023. "Effective sampling for drift mitigation in machine learning using scenario selection: A microgrid case study," Applied Energy, Elsevier, vol. 341(C).
    3. Shank, Corey A., 2022. "Information asymmetry in the NFL gambling market: Inside information versus informed bettors," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    4. Marius Ötting & Christian Deutscher & Carl Singleton & Luca De Angelis, 2022. "Gambling on Momentum," Economics Discussion Papers em-dp2022-10, Department of Economics, University of Reading.
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    5. Nofsinger, John R. & Shank, Corey A., 2023. "Momentum trading in the NFL gambling market," Finance Research Letters, Elsevier, vol. 55(PB).
    6. Marius Ötting & Christian Deutscher & Carl Singleton & Luca De Angelis, 2023. "Gambling on Momentum in Contests," Economics Discussion Papers em-dp2023-08, Department of Economics, University of Reading.

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    More about this item

    Keywords

    Overreaction; Recency bias; Behavioral bias; NFL; Gambling;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G4 - Financial Economics - - Behavioral Finance
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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