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An Explanation of Inefficiencies in the Pelota Betting Market: Rank Dependent Expected Utility

  • Loreto Llorente

    (Universidad Publica de Navarra, Campus Arrosadia)

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    In Pelota matches, games with two mutually exclusive and exhaustive outcomes, bets on the winner are made through a middleman who receives 16% of the finally paid amount. The classical decision theory of expected utility maximization can not explain this market assuming bettors are identical. Llorente and Aizpurua (2007) explain the existence of bets in the market under Quiggin's rank dependent expected utility (RDEU) model. They find that bettors have to be optimistic in order to explain the existence of a bet. Analyzing the way odds are fixed in the market Llorente (2006) finds that assuming equal return on bets there are inefficiencies in the market. In this paper we show that, given an assumption that bettors are rank dependent expected utility maximizers, these inefficiencies tend to disappear.

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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): 2 (June)
    Pages: 147-163

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    Handle: RePEc:buc:jgbeco:v:1:y:2007:i:2:p:147-163
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