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A favorite-longshot bias in fixed-odds betting markets: Evidence from college basketball and college football

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  • Berkowitz, Jason P.
  • Depken, Craig A.
  • Gandar, John M.

Abstract

This paper provides empirical evidence that the favorite-longshot bias persists in money-line betting markets of both college basketball and college football. This is the first clear evidence of the favorite-longshot bias existing in fixed-odds money-line betting markets in the US, as the reverse favorite-longshot bias has been documented in professional baseball and hockey money-line and in US sports sides-line markets. We also document that betting on heavy favorites in both of these markets yields an average return close to zero, suggesting this strategy removes the negative expected return created by the bookmaker's commission. This “break even” betting strategy persisted in both sports over the sample period. Thus, the evidence suggests that these two betting markets are efficient within transaction costs.

Suggested Citation

  • Berkowitz, Jason P. & Depken, Craig A. & Gandar, John M., 2017. "A favorite-longshot bias in fixed-odds betting markets: Evidence from college basketball and college football," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 233-239.
  • Handle: RePEc:eee:quaeco:v:63:y:2017:i:c:p:233-239
    DOI: 10.1016/j.qref.2015.11.011
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    References listed on IDEAS

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    1. Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Long Shot Bias: Is it Risk-Love or Misperceptions?," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 723-746, August.
    2. Linda M. Woodland & Bill M. Woodland, 2011. "The Reverse Favorite—Longshot Bias in the National Hockey League: Do Bettors Still Score on Longshots?," Journal of Sports Economics, , vol. 12(1), pages 106-117, February.
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    5. Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Long Shot Bias: Is it Risk-Love or Misperceptions?," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 723-746, August.
    6. Raymond Sauer, 2005. "The state of research on markets for sports betting and suggested future directions," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(3), pages 416-426, September.
    7. Raymond D. Sauer, 1998. "The Economics of Wagering Markets," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2021-2064, December.
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    9. Linda M. Woodland & Bill M. Woodland, 2001. "Market Efficiency and Profitable Wagering in the National Hockey League: Can Bettors Score on Longshots?," Southern Economic Journal, Southern Economic Association, vol. 67(4), pages 983-995, April.
    10. Rodney Paul & Andrew Weinbach, 2005. "Market efficiency and NCAA college basketball gambling," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 29(3), pages 403-408, September.
    11. J. M. Gandar & Richard Zuber & R. S. Johnson & W. Dare, 2002. "Re-examining the betting market on Major League Baseball games: is there a reverse favourite-longshot bias?," Applied Economics, Taylor & Francis Journals, vol. 34(10), pages 1309-1317.
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    Cited by:

    1. Tai, Chung-Ching & Lin, Hung-Wen & Chie, Bin-Tzong & Tung, Chen-Yuan, 2019. "Predicting the failures of prediction markets: A procedure of decision making using classification models," International Journal of Forecasting, Elsevier, vol. 35(1), pages 297-312.
    2. Sung, Ming-Chien & McDonald, David C.J. & Johnson, Johnnie E.V. & Tai, Chung-Ching & Cheah, Eng-Tuck, 2019. "Improving prediction market forecasts by detecting and correcting possible over-reaction to price movements," European Journal of Operational Research, Elsevier, vol. 272(1), pages 389-405.
    3. Dmitry Dagaev & Egor Stoyan, 2019. "Parimutuel Betting On The Esports Duels: Reverse Favourite-Longshot Bias And Its Determinants," HSE Working papers WP BRP 216/EC/2019, National Research University Higher School of Economics.
    4. Bernardo, Giovanni & Ruberti, Massimo & Verona, Roberto, 2019. "Semi-strong inefficiency in the fixed odds betting market: Underestimating the positive impact of head coach replacement in the main European soccer leagues," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 239-246.
    5. Franke, Maximilian, 2020. "Do market participants misprice lottery-type assets? Evidence from the European soccer betting market," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 1-18.

    More about this item

    Keywords

    Favorite-Longshot bias; Sports betting; Market efficiency;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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