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The Longshot Bias Is a Context Effect

Author

Listed:
  • Andrew Meyer

    (Marketing Department, The Chinese University of Hong Kong Business School, Shatin, New Territories, Hong Kong; Pristine Infotech, Burlington, Massachusetts 01803)

  • Sean Hundtofte

    (Solve Finance, New York, New York 10960)

Abstract

In nearly every betting market, gamblers overvalue the riskiest bets. This “longshot bias” is usually explained by a tendency to overweight low-probability events. We offer a novel explanation: contrast effects enhance the attractiveness of longshots because gambles presented in terms of their payoffs are easier to compare along the payoff dimension than along the probability dimension. Our analysis of historical betting odds suggests that contrasts between gamble payoffs can explain the longshot bias. Laboratory experiments confirm those contrast effects and show that the longshot bias disappears when gamblers consider bets in isolation or when winning probabilities are easier to compare.

Suggested Citation

  • Andrew Meyer & Sean Hundtofte, 2023. "The Longshot Bias Is a Context Effect," Management Science, INFORMS, vol. 69(11), pages 6954-6968, November.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:11:p:6954-6968
    DOI: 10.1287/mnsc.2023.4684
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