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Do Bettors Prefer Long Shots because They Are Risk-Lovers, or Are They Just Overconfident?

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  • Golec, Joseph
  • Tamarkin, Maurry
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    Abstract

    This study examines whether bettors' risk preferences or overconfidence in choosing winners better explains their well documented preference for low-probability wagers. Although previous studies using racetrack data often suggest that risk-loving behavior explains long-shot preference, such data cannot distinguish between the alternative explanations. We use football betting data to make the comparison and find that overconfidence more closely fits the data. This result complements evidence of overconfidence from behavioral studies as well as stock-market models of overconfident noise traders. Copyright 1995 by Kluwer Academic Publishers

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    Bibliographic Info

    Article provided by Springer in its journal Journal of Risk and Uncertainty.

    Volume (Year): 11 (1995)
    Issue (Month): 1 (July)
    Pages: 51-64

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    Handle: RePEc:kap:jrisku:v:11:y:1995:i:1:p:51-64

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    Web page: http://www.springerlink.com/link.asp?id=100299

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    Cited by:
    1. Koellinger, Ph.D. & Treffers, T., 2012. "Joy leads to Overconfidence, and a Simple Remedy," ERIM Report Series Research in Management ERS-2012-001-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
    2. Paul Ferraro, 2005. "Know thyself: Incompetence and overconfidence," Framed Field Experiments 00148, The Field Experiments Website.

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