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Expected utility, skewness, and the baseball betting market

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  • Bill Woodland
  • Linda Woodland

Abstract

A subjective expected utility model is developed to explain the gambling behaviour of bettors on Major League Baseball games in the United States. Betting activity was examined over 15 seasons, for the period 1978 - 1992. The observed overbetting of favourite teams by baseball bettors can be reconciled without abandoning the traditional assumption of risk aversion. Additionally, there is some evidence to suggest that positive skewness has a discernible influence in the decision-making process for higher odds contests.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 31 (1999)
Issue (Month): 3 ()
Pages: 337-345

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Handle: RePEc:taf:applec:v:31:y:1999:i:3:p:337-345

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  1. Tsiang, S C, 1972. "The Rationale of the Mean-Standard Deviation Analysis, Skewness Preference, and the Demand for Money," American Economic Review, American Economic Association, vol. 62(3), pages 354-71, June.
  2. Bailey, Martin J & Olson, Mancur & Wonnacott, Paul, 1980. "The Marginal Utility of Income Does not Increase: Borrowing, Lending, and Friedman-Savage Gambles," American Economic Review, American Economic Association, vol. 70(3), pages 372-79, June.
  3. Francis, Jack Clark, 1975. "Skewness and Investors' Decisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(01), pages 163-172, March.
  4. Quandt, Richard E, 1986. "Betting and Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 201-07, February.
  5. Markowitz, Harry M., 1990. "Foundations of Portfolio Theory," Nobel Prize in Economics documents 1990-1, Nobel Prize Committee.
  6. Asch, Peter & Quandt, Richard E, 1987. "Efficiency and Profitability in Exotic Bets," Economica, London School of Economics and Political Science, vol. 54(215), pages 289-98, August.
  7. Alderfer, Clayton P & Bierman, Harold, Jr, 1970. "Choices with Risk: Beyond the Mean and Variance," The Journal of Business, University of Chicago Press, vol. 43(3), pages 341-53, July.
  8. Weitzman, Martin L., 1965. "Utility Analysis and Group Behavior: An Empirical Study," Scholarly Articles 3710799, Harvard University Department of Economics.
  9. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June.
  10. Gandar, John, et al, 1988. " Testing Rationality in the Point Spread Betting Market," Journal of Finance, American Finance Association, vol. 43(4), pages 995-1008, September.
  11. Bird, Ron & McCrae, Michael & Beggs, John J, 1987. "Are Gamblers Really Risk Takers?," Australian Economic Papers, Wiley Blackwell, vol. 26(49), pages 237-53, December.
  12. Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
  13. Fred D. Arditti, 1967. "Risk And The Required Return On Equity," Journal of Finance, American Finance Association, vol. 22(1), pages 19-36, 03.
  14. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-74, Spring.
  15. Levy, H & Markowtiz, H M, 1979. "Approximating Expected Utility by a Function of Mean and Variance," American Economic Review, American Economic Association, vol. 69(3), pages 308-17, June.
  16. Woodland, Bill M & Woodland, Linda M, 1991. "The Effects of Risk Aversion on Wagering: Point Spread versus Odds," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 638-53, June.
  17. Woodland, Linda M & Woodland, Bill M, 1994. " Market Efficiency and the Favorite-Longshot Bias: The Baseball Betting Market," Journal of Finance, American Finance Association, vol. 49(1), pages 269-79, March.
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Cited by:
  1. Per Binde, 2005. "Gambling Across Cultures: Mapping Worldwide Occurrence and Learning from Ethnographic Comparison," International Gambling Studies, Taylor & Francis Journals, vol. 5(1), pages 1-27, June.
  2. Gunnarsson, Sara & Shogren, Jason F. & Cherry, Todd L., 2003. "Are preferences for skewness fixed or fungible?," Economics Letters, Elsevier, vol. 80(1), pages 113-121, July.
  3. Jennifer Brown & Dylan B. Minor, 2011. "Selecting the Best? Spillover and Shadows in Elimination Tournaments," NBER Working Papers 17639, National Bureau of Economic Research, Inc.
  4. Herman O. Stekler & David Sendor & Richard Verlander, 2009. "Issues in Sports Forecasting," Working Papers 2009-002, The George Washington University, Department of Economics, Research Program on Forecasting.
  5. Scott Tainsky & Jason Winfree, 2010. "Short-Run Demand and Uncertainty of Outcome in Major League Baseball," Review of Industrial Organization, Springer, vol. 37(3), pages 197-214, November.

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