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On sticky bookmaking as a learning device in horse-racing betting markets

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  • Zhang, Chi
  • Thijssen, Jacco

Abstract

We present a stochastic dynamic model of the adjustment of betting odds by bookmakers in a horse-racing betting market. We use optimal stopping theory in a two-horse benchmark model with both informed and noise punters. A costly learning process discloses what information the informed traders possess and a risk-neutral bookmaker selects a stopping time at which the betting odds for each horse in a race are adjusted. Our main finding shows that an increased fraction of informed punters has a non-monotonic effect on the loss per trade to the bookmaker. We also find that as the fraction of noise traders goes up, the learning process is less informative, so that the decision to change the prices for each horse is taken sooner.

Suggested Citation

  • Zhang, Chi & Thijssen, Jacco, 2022. "On sticky bookmaking as a learning device in horse-racing betting markets," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    • Handle: RePEc:eee:dyncon:v:144:y:2022:i:c:s0165188922002299
    DOI: 10.1016/j.jedc.2022.104525
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    More about this item

    Keywords

    Horse racing; Betting markets; Dynamic pricing; Optimal stopping time; Sequential hypothesis testing;
    All these keywords.

    JEL classification:

    • Z23 - Other Special Topics - - Sports Economics - - - Finance
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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