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The house doesn’t always win: Evidence of anchoring among Australian bookies

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  • McAlvanah, Patrick
  • Moul, Charles C.

Abstract

We examine Australian horseracing bookmakers’ responses to late scratches, instances in which a horse is abruptly withdrawn after betting has commenced. Our observed bookies exhibit anchoring on the original odds and fail to re-adjust odds fully on the remaining horses after a scratch, thereby earning lower profit margins and occasionally creating nominal arbitrage opportunities for bettors. We also examine which horses’ odds bookies adjust after a scratch and demonstrate diminished profit margins even after controlling for these endogenous adjustments. Our results indicate that bookies’ adjustments recover approximately 80% of lost profit margin but that bookies forgo the remaining 20% due to systematic under-adjustments.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 90 (2013)
Issue (Month): C ()
Pages: 87-99

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Handle: RePEc:eee:jeborg:v:90:y:2013:i:c:p:87-99

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Anchoring bias; Behavioral economics; Fixed-odds wagering; Natural experiment;

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References

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Citations

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Cited by:
  1. Meub, Lukas & Proeger, Till, 2014. "An experimental study on social anchoring," Center for European, Governance and Economic Development Research Discussion Papers 196, University of Goettingen, Department of Economics.
  2. Tin Cheuk Leung & Kwok Ping Tsang, 2010. "Anchoring and Loss Aversion in the Housing Market: Implications on Price Dynamics," Working Papers e07-20, Virginia Polytechnic Institute and State University, Department of Economics.
  3. Meub, Lukas & Proeger, Till & Bizer, Kilian, 2013. "Anchoring: A valid explanation for biased forecasts when rational predictions are easily accessible and well incentivized?," Center for European, Governance and Economic Development Research Discussion Papers 166, University of Goettingen, Department of Economics.
  4. Meub, Lukas & Proeger, Till, 2014. "Are groups 'less behavioral'? The case of anchoring," Center for European, Governance and Economic Development Research Discussion Papers 188, University of Goettingen, Department of Economics.
  5. Charles Moul & Joseph Keller, 2014. "Time to Unbridle U.S. Thoroughbred Racetracks? Lessons from Australian Bookies," Review of Industrial Organization, Springer, vol. 44(3), pages 211-239, May.

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