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Imperfect Market-Maker Competition, Heterogeneous Expectations, and The Favourite-Longshot Bias in Wagering Markets

Listed author(s):
  • William Hurley
  • Lawrence McDonough
Registered author(s):

    In the study of wagering markets, it is generally the case that the objective probabilities of various contestants (horses, teams, etc.) winning do not match those implied by the betting. More often than not favourites are underbet and longshots overbet, although some studies have found the reverse. We offer an explanation in the case where there is imperfect competition among book-makers and heterogeneous expectations among bettors.

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    File URL: http://www.ubplj.org/index.php/jgbe/article/view/506
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    Article provided by University of Buckingham Press in its journal Journal of Gambling Business and Economics.

    Volume (Year): 1 (2007)
    Issue (Month): 1 (February)
    Pages: 3-12

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    Handle: RePEc:buc:jgbeco:v:1:y:2007:i:1:p:3-12
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    1. Kanto, Antti J. & Rosenqvist, Gunnar & Suvas, Arto, 1992. "On utility function estimation of racetrack bettors," Journal of Economic Psychology, Elsevier, vol. 13(3), pages 491-498, September.
    2. Leighton Vaughan Williams & David Paton, 1998. "Why are some favourite-longshot biases positive and others negative?," Applied Economics, Taylor & Francis Journals, vol. 30(11), pages 1505-1510.
    3. John Fingleton & Patrick Waldron, 1996. "Optimal Determination of Bookmakers' Betting Odds: Theory and Tests," Economics Technical Papers 969, Trinity College Dublin, Department of Economics.
    4. Woodland, Linda M & Woodland, Bill M, 1994. " Market Efficiency and the Favorite-Longshot Bias: The Baseball Betting Market," Journal of Finance, American Finance Association, vol. 49(1), pages 269-279, March.
    5. Martin Weitzman, 2008. "Utility Analysis And Group Behavior An Empirical Study," World Scientific Book Chapters,in: Efficiency Of Racetrack Betting Markets, chapter 9, pages 47-55 World Scientific Publishing Co. Pte. Ltd..
    6. Michael Cain & David Law & David Peel, 2003. "The Favourite-Longshot Bias, Bookmaker Margins and Insider Trading in a Variety of Betting Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 55(3), pages 263-273, 07.
    7. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-174, Spring.
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