Bets and bids: favorite-longshot bias and winner's curse
AbstractA well-documented anomaly in racetrack betting is that the expected return per dollar bet on a horse increases with the probability of the horse winning. This socalled "favorite- longshot bias" is at odds with the presumptions of market efficiency. We offer a new solution to this much-debated puzzle which is related to another famous anomaly. We show that the bias can be explained by the same behavioral assumption that underlies the well-known "winner's curse" in common value auctions.
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Bibliographic InfoPaper provided by EconWPA in its series Microeconomics with number 9706003.
Length: 22 pages
Date of creation: 16 Jun 1997
Date of revision:
Note: Type of Document - WordPerfect; prepared on IBM PC; to print on HP Laserprinter 4; pages: 22 ; figures: included
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parimutuel market; favorite-longshot bias;
Other versions of this item:
- Potters, J.J.M. & Wit, J., 1996. "Bets and Bids: Favorite-Longshot Bias and Winner's Curse," Discussion Paper 1996-04, Tilburg University, Center for Economic Research.
- D1 - Microeconomics - - Household Behavior
- D2 - Microeconomics - - Production and Organizations
- D3 - Microeconomics - - Distribution
- D4 - Microeconomics - - Market Structure and Pricing
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