Risk Love and the Favorite-Longshot Bias: Evidence from German Harness Horse Racing
AbstractEmpirical studies of horse race betting in the U.S., the UK, and Australia have established the so called favorite-longshot bias. Studies find that on average, bets on longshots lose much more than do bets on favorites. This means that longshots are overbet and favorites are underbet. By using a large data set of pari-mutuel harness horse races, we show that the favorite-longshot bias exists in Germany as well. We provide evidence that there is bias not only for simple win bets, but also for other types of bets as well, and that the bias is a time- and track-invariant phenomenon. The bias is consistent with the assumption of the (local) love of risk of the betting audience.
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Bibliographic InfoArticle provided by LMU Munich School of Management in its journal Schmalenbach Business Review.
Volume (Year): 58 (2006)
Issue (Month): 4 (October)
Betting; Favorite-Longshot-Bias; Horse Race; Market Equilibrium; Risk;
Find related papers by JEL classification:
- L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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- Stefan Winter & Martin Kukuk, 2008. "Do horses like vodka and sponging? - On market manipulation and the favourite-longshot bias," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 75-87.
- Martin Kukuk & Stefan Winter, 2008. "An Alternative Explanation of the Favorite-Longshot Bias," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 2(2), pages 79-96, September.
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