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Evidence on the Favorite-Longshot Bias as a Supply-Side Phenomenon


  • Matti Metsola


The favorite-longshot bias has been referred to as the most longstanding empirical regularity in literature concerning decision-making under uncertainty, as well as a central theme of the literature on betting. However, it has defied authoritative explanation to date. Several attempts have been offered to explain the bias. They can be divided to two main categories: demand-oriented and supply-oriented explanations. This article argues in favour of supply-side explanations. The study is based on comparison of bookmaker odds to betting exchange odds in three betting markets. The data obtained illustrate that the disparity between bookmaker odds and betting exchange prices increases rapidly as the implied probability of the event decreases. This provides an explanation of the favorite-longshot bias which is consistent with earlier empirical research, showing declining expected returns on bets as odds increase. In addition, this explanation is consistent with the evidence concerning the volume of bets actually received by bookmakers.

Suggested Citation

  • Matti Metsola, 2010. "Evidence on the Favorite-Longshot Bias as a Supply-Side Phenomenon," Journal of Prediction Markets, University of Buckingham Press, vol. 4(1), pages 59-77, May.
  • Handle: RePEc:buc:jpredm:v:4:y:2010:i:1:p:59-77

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    Cited by:

    1. Jinook Jeong & Jee Young Kim & Yoon Jae Ro, 2017. "On the Efficiency of Racetrack Betting Market: A New Test for the Favorite-Longshot Bias," Working papers 2017rwp-106, Yonsei University, Yonsei Economics Research Institute.

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