An examination of the empirical derivatives of the favourite-longshot bias in racetrack betting
AbstractMarket efficiency dictates it equally profitable to bet on any racing participant, including the favourite or longshot. However, a well-documented anomaly is that racetrack bettors tend to overbet longshots and underbet favourites. This study presents and tests two theoretical explanations for this favourite-longshot bias. The unparalleled richness of the data allows the exploration of how the bias changes with several key variables. This study finds the most popular current explanation for the bias, the risk preference model, cannot explain the data as well as an information-based model, in which the bias depends on bet complexity and the information possessed by bettors.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Economics.
Volume (Year): 35 (2003)
Issue (Month): 4 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RAEC20
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Asch, Peter & Malkiel, Burton G & Quandt, Richard E, 1984. "Market Efficiency in Racetrack Betting," The Journal of Business, University of Chicago Press, vol. 57(2), pages 165-75, April.
- Ali, Mukhtar M, 1977. "Probability and Utility Estimates for Racetrack Bettors," Journal of Political Economy, University of Chicago Press, vol. 85(4), pages 803-15, August.
- De Bondt, Werner F M & Thaler, Richard H, 1990. "Do Security Analysts Overreact?," American Economic Review, American Economic Association, vol. 80(2), pages 52-57, May.
- 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.
- Losey, Robert L & Talbott, John C, Jr, 1980. " Back on the Track with the Efficient Markets Hypothesis," Journal of Finance, American Finance Association, vol. 35(4), pages 1039-43, September.
- Terrell, Dek, 1998. "Biases in Assessments of Probabilities: New Evidence from Greyhound Races," Journal of Risk and Uncertainty, Springer, vol. 17(2), pages 151-66, November.
- Terrell, Dek & Farmer, Amy, 1996. "Optimal Betting and Efficiency in Parimutuel Betting Markets with Information Costs," Economic Journal, Royal Economic Society, vol. 106(437), pages 846-68, July.
- Snyder, Wayne W, 1978. "Horse Racing: Testing the Efficient Markets Model," Journal of Finance, American Finance Association, vol. 33(4), pages 1109-18, September.
- Leighton Vaughan Williams & David Paton, 1998. "Why are some favourite-longshot biases positive and others negative?," Applied Economics, Taylor & Francis Journals, vol. 30(11), pages 1505-1510.
- Shin, Hyun Song, 1991. "Optimal Betting Odds against Insider Traders," Economic Journal, Royal Economic Society, vol. 101(408), pages 1179-85, September.
- Busche, Kelly & Hall, Christopher D, 1988. "An Exception to the Risk Preference Anomaly," The Journal of Business, University of Chicago Press, vol. 61(3), pages 337-46, July.
- Swidler, Steve & Shaw, Ron, 1995. "Racetrack wagering and the "uninformed" bettor: A study of market efficiency," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(3), pages 305-314.
- Zuber, Richard A & Gandar, John M & Bowers, Benny D, 1985. "Beating the Spread: Testing the Efficiency of the Gambling Market for National Football League Games," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 800-806, August.
- 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.
- 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.
- 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.
- Weitzman, Martin L., 1965. "Utility Analysis and Group Behavior: An Empirical Study," Scholarly Articles 3710799, Harvard University Department of Economics.
- Asch, Peter & Malkiel, Burton G. & Quandt, Richard E., 1982. "Racetrack betting and informed behavior," Journal of Financial Economics, Elsevier, vol. 10(2), pages 187-194, July.
- Hurley, William & McDonough, Lawrence, 1995. "A Note on the Hayek Hypothesis and the Favorite-Longshot Bias in Parimutuel Betting," American Economic Review, American Economic Association, vol. 85(4), pages 949-55, September.
- Asch, Peter & Malkiel, Burton G & Quandt, Richard E, 1986. "Market Efficiency in Racetrack Betting: Further Evidence and a Correction," The Journal of Business, University of Chicago Press, vol. 59(1), pages 157-60, January.
- Maschke, Mario & Schmidt, Ulrich, 2010.
"Das Wettmonopol in Deutschland: Status Quo und Reformansätze,"
Open Access Publications from Kiel Institute for the World Economy
32848, Kiel Institute for the World Economy (IfW).
- Maschke, Mario & Schmidt, Ulrich, 2010. "Das Wettmonopol in Deutschland: Status Quo und Reformansätze," Kiel Policy Brief 18, Kiel Institute for the World Economy (IfW).
- Marshall Gramm & Douglas Owens, 2005. "Determinants of betting market efficiency," Applied Economics Letters, Taylor & Francis Journals, vol. 12(3), pages 181-185.
- 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.
- John Peirson, 2008. "Expert Analysis and Insider Information in Horse Race Betting: Regulating Informed Market Behaviour," Studies in Economics 0819, Department of Economics, University of Kent.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.