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Risk Aversion and Favorite-Longshot Bias in a Competitive Fixed-Odds Betting Market

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  • Whelan, Karl

Abstract

Research on sports betting has generally found a favorite-longshot bias: Bets on longshots lose more than bets on favorites. Existing research focuses largely on pari-mutuel betting but favorite-longshot bias is also evident in fixed-odds online betting markets of the type that are growing rapidly around the world. Explanations for this bias in previous work on parimutuel markets cannot explain why it would be a feature of competitive fixed-odds betting markets. We show how disagreement among gamblers and risk-aversion on the part of bookmakers in a competitive market can produce a pattern of favorite-longshot bias resembling the empirical evidence.

Suggested Citation

  • Whelan, Karl, 2023. "Risk Aversion and Favorite-Longshot Bias in a Competitive Fixed-Odds Betting Market," MPRA Paper 116923, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:116923
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    More about this item

    Keywords

    Sports Betting; Gambling; Favorite-Longshot Bias; Risk Aversion;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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