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Prospect Theory and the Favorite Long-Shot Bias in Baseball

Author

Listed:
  • James Nutaro

    (Computational Sciences and Engineering Division, Oak Ridge National Laboratory, Oak Ridge, TN 37831, USA)

Abstract

We provide new evidence of a favorite long-shot bias for bets placed on baseball games. Our analysis uses the difference of mean run differentials as an observable proxy for the probability of a team to win. When baseball is viewed through this proxy, we see that bettors believe favorites are less likely to win than they actually are and long-shots more likely. This result is consistent with prospect theory, which suggests that large and small probabilities are poorly estimated when making decisions with risk.

Suggested Citation

  • James Nutaro, 2023. "Prospect Theory and the Favorite Long-Shot Bias in Baseball," Risks, MDPI, vol. 11(5), pages 1-11, May.
    • Handle: RePEc:gam:jrisks:v:11:y:2023:i:5:p:95-:d:1149463
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