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Towards an Understanding of the Origins of the Favourite–Longshot Bias: Evidence from Online Poker Markets, a Real‐money Natural Laboratory

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  • Leighton Vaughan Williams
  • Ming‐Chien Sung
  • Peter A. F. Fraser‐Mackenzie
  • John Peirson
  • Johnnie E. V. Johnson

Abstract

Evidence of differential returns to bets placed with different probabilities of success has revealed a broadly systematic tendency for low/high‐probability events to be relatively overbet/underbet, a phenomenon known as the favourite–longshot bias. While most of the literature focuses on sports, especially horse racing, we report here the existence of the same phenomenon in online poker games. We find that misperception rather than risk‐love offers the best explanation for the behaviour that we identify. This paper contributes to the more general literature explaining betting behaviour as well as the prevalence of the favourite–longshot bias in betting markets.

Suggested Citation

  • Leighton Vaughan Williams & Ming‐Chien Sung & Peter A. F. Fraser‐Mackenzie & John Peirson & Johnnie E. V. Johnson, 2018. "Towards an Understanding of the Origins of the Favourite–Longshot Bias: Evidence from Online Poker Markets, a Real‐money Natural Laboratory," Economica, London School of Economics and Political Science, vol. 85(338), pages 360-382, April.
    • Handle: RePEc:bla:econom:v:85:y:2018:i:338:p:360-382
    DOI: 10.1111/ecca.12200
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    References listed on IDEAS

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    Cited by:

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    3. Costa Sperb, L.F. & Sung, M.-C. & Ma, T. & Johnson, J.E.V., 2022. "Turning the heat on financial decisions: Examining the role temperature plays in the incidence of bias in a time-limited financial market," European Journal of Operational Research, Elsevier, vol. 299(3), pages 1142-1157.
    4. Angelini, Giovanni & De Angelis, Luca & Singleton, Carl, 2022. "Informational efficiency and behaviour within in-play prediction markets," International Journal of Forecasting, Elsevier, vol. 38(1), pages 282-299.
    5. J. James Reade & Carl Singleton & Alasdair Brown, 2021. "Evaluating strange forecasts: The curious case of football match scorelines," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(2), pages 261-285, May.
    6. Ramirez, Philip & Reade, J. James & Singleton, Carl, 2023. "Betting on a buzz: Mispricing and inefficiency in online sportsbooks," International Journal of Forecasting, Elsevier, vol. 39(3), pages 1413-1423.

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