Optimal Betting Odds against Insider Traders
This paper examines the optimal pricing decision of a bookmaker facing a group of gamblers, some of whom have superior information to the bookmaker. The central result is that the normalized betting odds diverge systematically from the true possibilities of winning. Specifically, it is optimal for the bookmaker to follow a "square root rule" in which the ratio of posted prices is given by the square root of the ratio of winning probabilities. One consequence of this rule is that the betting odds understate the winning chances of the favorites and exaggerate the winning chances of the longshots. This is precisely the bias observed in several empirical investigations of betting markets. Copyright 1991 by Royal Economic Society.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 101 (1991)
Issue (Month): 408 (September)
|Contact details of provider:|| Postal: Office of the Secretary-General, Rm E35, The Bute Building, Westburn Lane, St Andrews, KY16 9AR, UK|
Phone: +44 1334 462479
Web page: http://www.res.org.uk/
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishers.co.uk/asp/journal.asp?ref=0013-0133|
When requesting a correction, please mention this item's handle: RePEc:ecj:econjl:v:101:y:1991:i:408:p:1179-85. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.