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The Construction of a Simple Book

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  • Cain, Michael
  • Law, David
  • Lindley, Dennis

Abstract

A book is made for a horse race, and punters place their bets. The problem considered here is how the bookmaker should construct his book. Before this can be solved, it has to be determined how the punters will react to any proposed book. Much of the detailed discussion is confined to a race with two horses, though some results apply in the general case. The punters' problem is solved using a utility function, special attention being paid to the case of constant risk-aversion. Two solutions are provided for the bookmaker's problem, dependent on whether it is desired to maximize expected gain, or achieve the same gain whatever horse wins. Copyright 2000 by Kluwer Academic Publishers

Suggested Citation

  • Cain, Michael & Law, David & Lindley, Dennis, 2000. "The Construction of a Simple Book," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 119-140, March.
  • Handle: RePEc:kap:jrisku:v:20:y:2000:i:2:p:119-40
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    Cited by:

    1. Jeremy Sandford & Paul Shea, 2013. "Optimal Setting of Point Spreads," Economica, London School of Economics and Political Science, vol. 80(317), pages 149-170, January.
    2. David Johnstone, 2007. "Economic Darwinism: Who has the Best Probabilities?," Theory and Decision, Springer, vol. 62(1), pages 47-96, February.
    3. Humphreys, Brad, 2010. "Prices, Point Spreads and Profits: Evidence from the National Football League," Working Papers 2010-5, University of Alberta, Department of Economics.

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