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Bookmaker and pari-mutuel betting: Is a (reverse) favourite-longshot bias built-in?

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Author Info

  • Alexander K. Koch

    ()
    (Department of Economics, Royal Holloway, University of London)

  • Hui-Fai Shing

    ()
    (Department of Economics, Royal Holloway, University of London)

Abstract

A widely documented empirical regularity in gambling markets is that bets on high probability events (a race won by a ``favourite'') have higer expected returns than bets on low probability events (a ``longshot'' win). Such favourite-longshot (FL) biases however appear to be more severe and persistent in bookmaker markets than in pari-mutuel markets; the latter sometims exhibit no bias or a revers FL bias. Our results help understand these differences: the odds grid in bookmaker markets leads to a built-in FL bias, wheras that used in pari-mutuel betting pushes these markets toward a reverse FL bias.

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Bibliographic Info

Paper provided by Department of Economics, Royal Holloway University of London in its series Royal Holloway, University of London: Discussion Papers in Economics with number 07/04.

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Date of creation: Nov 2007
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Handle: RePEc:hol:holodi:0704

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Related research

Keywords: Gambling; Favourite-Lonshot Bias; Bookmaker betting; Parimutuel Betting; Breakage; Tick Size.;

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