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Decision Costs And Betting Market Efficiency

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  • Kelly Busche
  • W. David Walls

Abstract

In this research we examine empirically the linkage between decision costs and market efficiency in the context of racetrack betting markets. We analyze more than 10,000 horse races and demonstrate that metrics of non-optimizing behavior are inversely related to the volume of betting: we are less likely to observe evidence of non-optimizing behavior when examining data from racetracks with larger betting pools. The analysis provides empirical support for the decision-cost model in which departures from the predictions of rational economic behavior are explained in terms of the cost of non-optimizing decisions. The decision-cost model reconciles the disparate findings on the efficiency of racetrack betting markets reported in previous research.

Suggested Citation

  • Kelly Busche & W. David Walls, 2000. "Decision Costs And Betting Market Efficiency," Rationality and Society, , vol. 12(4), pages 477-492, November.
    • Handle: RePEc:sae:ratsoc:v:12:y:2000:i:4:p:477-492
    DOI: 10.1177/104346300012004006
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    References listed on IDEAS

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    1. Jinook Jeong & Jee Young Kim & Yoon Jae Ro, 2019. "On the efficiency of racetrack betting market: a new test for the favourite-longshot bias," Applied Economics, Taylor & Francis Journals, vol. 51(54), pages 5817-5828, November.
    2. M. Sung & J. E. V. Johnson, 2010. "Revealing Weak‐Form Inefficiency in a Market for State Contingent Claims: The Importance of Market Ecology, Modelling Procedures and Investment Strategies," Economica, London School of Economics and Political Science, vol. 77(305), pages 128-147, January.
    3. Marshall Gramm & C. Nicholas McKinney & Douglas H. Owens & Matt E. Ryan, 2007. "What Do Bettors Want? Determinants of Pari‐Mutuel Betting Preference," American Journal of Economics and Sociology, Wiley Blackwell, vol. 66(3), pages 465-491, July.
    4. Les Coleman, 2007. "Just How Serious is Insider Trading? An Evaluation using Thoroughbred Wagering Markets," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 1(1), pages 31-55, February.
    5. Alistair C. Bruce & Johnnie E. V. Johnson & John D. Peirson & Jiejun Yu, 2009. "An Examination of the Determinants of Biased Behaviour in a Market for State Contingent Claims," Economica, London School of Economics and Political Science, vol. 76(302), pages 282-303, April.
    6. Les Coleman, 2004. "New light on the longshot bias," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 315-326.
    7. Marshall Gramm & Douglas H. Owens, 2006. "Efficiency in Pari‐Mutuel Betting Markets across Wagering Pools in the Simulcast Era," Southern Economic Journal, John Wiley & Sons, vol. 72(4), pages 926-937, April.
    8. Philip W. S. Newall & Dominic Cortis, 2021. "Are Sports Bettors Biased toward Longshots, Favorites, or Both? A Literature Review," Risks, MDPI, vol. 9(1), pages 1-9, January.

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