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Late Informed Betting and the Favourite-Longshot Bias

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Author Info

  • Ottaviani, Marco
  • Sorensen, Peter Norman

Abstract

According to the favorite-longshot bias observed in pari-mutuel betting, the final distribution of bets overestimates the winning chance of longshots. This Paper proposes an explanation of this bias based on late betting by small privately informed bettors. These bettors have an incentive to protect their private information and bet at the last minute, without knowing the bets simultaneously placed by the others. Once the distribution of bets is revealed, if bets are more informative than noisy, all bettors can recognize that the longshot is less likely to win than indicated by the distribution of bets.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4092.

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Date of creation: Oct 2003
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Handle: RePEc:cpr:ceprdp:4092

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Related research

Keywords: favourite-longshot bias; parimutuel betting; private information; timing;

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References

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  1. Metrick, Andrew, 1996. "March madness? Strategic behavior in NCAA basketball tournament betting pools," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 159-172, August.
  2. Hamilton, Jonathan H. & Slutsky, Steven M., 1990. "Endogenous timing in duopoly games: Stackelberg or cournot equilibria," Games and Economic Behavior, Elsevier, vol. 2(1), pages 29-46, March.
  3. Frederic Koessler & Charles Noussair & Anthony Ziegelmeyer, 2006. "Parimutuel Betting under Asymmetric Information," Papers on Strategic Interaction 2006-05, Max Planck Institute of Economics, Strategic Interaction Group.
  4. Raymond D. Sauer, 1998. "The Economics of Wagering Markets," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2021-2064, December.
  5. Crafts, Nicholas F R, 1985. "Some Evidence of Insider Knowledge in Horse Race Betting in Britain," Economica, London School of Economics and Political Science, vol. 52(27), pages 295-304, August.
  6. Feeney, Rob & King, Stephen P., 2001. "Sequential parimutuel games," Economics Letters, Elsevier, vol. 72(2), pages 165-173, August.
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Cited by:
  1. Frédéric KOESSLER & Anthony ZIEGELMEYER, 2002. "Parimutuel Betting under Asymmetric Information," Working Papers of BETA 2002-17, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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