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The house doesn’t always win: Evidence of anchoring among Australian bookies

  • McAlvanah, Patrick
  • Moul, Charles C.

We examine Australian horseracing bookmakers’ responses to late scratches, instances in which a horse is abruptly withdrawn after betting has commenced. Our observed bookies exhibit anchoring on the original odds and fail to re-adjust odds fully on the remaining horses after a scratch, thereby earning lower profit margins and occasionally creating nominal arbitrage opportunities for bettors. We also examine which horses’ odds bookies adjust after a scratch and demonstrate diminished profit margins even after controlling for these endogenous adjustments. Our results indicate that bookies’ adjustments recover approximately 80% of lost profit margin but that bookies forgo the remaining 20% due to systematic under-adjustments.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 90 (2013)
Issue (Month): C ()
Pages: 87-99

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Handle: RePEc:eee:jeborg:v:90:y:2013:i:c:p:87-99
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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