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Do Bettors Prefer Long Shots because They Are Risk-Lovers, or Are They Just Overconfident?

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  • Golec, Joseph
  • Tamarkin, Maurry

Abstract

This study examines whether bettors' risk preferences or overconfidence in choosing winners better explains their well documented preference for low-probability wagers. Although previous studies using racetrack data often suggest that risk-loving behavior explains long-shot preference, such data cannot distinguish between the alternative explanations. We use football betting data to make the comparison and find that overconfidence more closely fits the data. This result complements evidence of overconfidence from behavioral studies as well as stock-market models of overconfident noise traders. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Golec, Joseph & Tamarkin, Maurry, 1995. "Do Bettors Prefer Long Shots because They Are Risk-Lovers, or Are They Just Overconfident?," Journal of Risk and Uncertainty, Springer, vol. 11(1), pages 51-64, July.
  • Handle: RePEc:kap:jrisku:v:11:y:1995:i:1:p:51-64
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    Cited by:

    1. Hwang, Joon Ho & Kim, Min-Su, 2015. "Misunderstanding of the binomial distribution, market inefficiency, and learning behavior: Evidence from an exotic sports betting market," European Journal of Operational Research, Elsevier, vol. 243(1), pages 333-344.
    2. Koellinger, Ph.D. & Treffers, T., 2012. "Joy leads to Overconfidence, and a Simple Remedy," ERIM Report Series Research in Management ERS-2012-001-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    3. Paul Ferraro, 2005. "Know thyself: Incompetence and overconfidence," Framed Field Experiments 00148, The Field Experiments Website.
    4. Shapira-Ettinger Keren & Shapira Ron A., 2008. "The Constructive Value of Overconfidence," Review of Law & Economics, De Gruyter, vol. 4(3), pages 751-778, December.

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