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New empirical evidence on the Tote–SP anomaly and its implications for models of risky choice in gambling markets

In: The Economics of Sports Betting

Author

Listed:
  • Babatunde Buraimo
  • David Peel
  • Robert Simmons

Abstract

In North America and Europe, the dominant mode of horse race betting is pari-mutuel where the operator takes a fixed commission and winners share a pool of betting money. In the United Kingdom, this betting format is known as the ‘Tote’. But unlike Europe and North America, United Kingdom bettors can choose to bet on the pari-mutuel form or at fixed-odds offered by on-course and off-course bookmakers. This raises the question, addressed in this chapter, of whether returns for winning bets are similar across both types of market. The authors investigate UK horse racing and find that returns for winning bets are superior in the pari-mutuel market, compared to fixed-odds bets, for long shots but not at short odds. The authors rationalize this finding in terms of how odds are set by bookmakers together with gamblers’ attitudes to risk, bearing in mind that the pari-mutuel sector is a more risky proposition for a gambler given that odds are unknown ex ante.

Suggested Citation

  • Babatunde Buraimo & David Peel & Robert Simmons, 2017. "New empirical evidence on the Tote–SP anomaly and its implications for models of risky choice in gambling markets," Chapters, in: Plácido Rodríguez & Brad R. Humphreys & Robert Simmons (ed.), The Economics of Sports Betting, chapter 6, pages 92-104, Edward Elgar Publishing.
  • Handle: RePEc:elg:eechap:16946_6
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    Keywords

    Economics and Finance;

    Statistics

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