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Optimal Determination of Bookmakers' Betting Odds: Theory and Tests

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  • John Fingleton
  • Patrick Waldron
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    Abstract

    This paper develops a theoretical model of how bookmakers' odds are determined, given varying levels of inside information on the part of punters. Bookmakers' attitudes towards risk and the degree of competition between them will influence bookmaker behaviour. Using a data set of 1,696 races in Ireland in 1993, we find that bookmakers are extremely risk-averse, and estimate that operating costs and monopoly rents combined account for up to 4 per cent of turnover and that between 3.1 and 3.7 per cent of betting is by punters with inside information.

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    Bibliographic Info

    Paper provided by Trinity College Dublin, Department of Economics in its series Economics Technical Papers with number 969.

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    Date of creation: 1996
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    Handle: RePEc:tcd:tcduet:969

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    Postal: Trinity College, Dublin 2
    Phone: (+ 353 1) 6081325
    Fax: 6772503
    Web page: http://www.tcd.ie/Economics/
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