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Do Financial Incentives Affect The Quality of Expert Performance? Evidence from the Racetrack

  • Glenn Boyle

    (Victoria University of Wellington)

Does the quality of performance by experts respond to financial incentives? I provide some new evidence on this question by examining the propensity of racehorse trainers to undertake effort-diverting actions. In a sample of 30426 horse races, I find that lower race stakes are strongly associated with more unexpected outcomes, consistent with more trainers exerting less-than-full effort in such races. These results continue to hold when low-information races are excluded from the sample, thereby ruling out the possibility that stake is simply a proxy for the level of information that is available to bettors. Moreover, in a sub-sample of 4416 races for which final odds data are available, the dispersion in odds is positively related to race stake, consistent with rational bettors recognising the incentives faced by trainers and incorporating this insight in their investments. As a group, horse trainers apparently tailor the quality of their services to the potential size of their remuneration from clients.

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Article provided by University of Buckingham Press in its journal Journal of Gambling Business and Economics.

Volume (Year): 2 (2008)
Issue (Month): 2 (September)
Pages: 43-59

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Handle: RePEc:buc:jgbeco:v:2:y:2008:i:2:p:43-59
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