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Expected utility, skewness, and the baseball betting market

  • Bill Woodland
  • Linda Woodland

A subjective expected utility model is developed to explain the gambling behaviour of bettors on Major League Baseball games in the United States. Betting activity was examined over 15 seasons, for the period 1978 - 1992. The observed overbetting of favourite teams by baseball bettors can be reconciled without abandoning the traditional assumption of risk aversion. Additionally, there is some evidence to suggest that positive skewness has a discernible influence in the decision-making process for higher odds contests.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/000368499324327
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 31 (1999)
Issue (Month): 3 ()
Pages: 337-345

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Handle: RePEc:taf:applec:v:31:y:1999:i:3:p:337-345
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  1. Gandar, John, et al, 1988. " Testing Rationality in the Point Spread Betting Market," Journal of Finance, American Finance Association, vol. 43(4), pages 995-1008, September.
  2. Weitzman, Martin L., 1965. "Utility Analysis and Group Behavior: An Empirical Study," Scholarly Articles 3710799, Harvard University Department of Economics.
  3. Quandt, Richard E, 1986. "Betting and Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 201-07, February.
  4. Bird, Ron & McCrae, Michael & Beggs, John J, 1987. "Are Gamblers Really Risk Takers?," Australian Economic Papers, Wiley Blackwell, vol. 26(49), pages 237-53, December.
  5. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-74, Spring.
  6. Meyer, Jack, 1987. "Two-moment Decision Models and Expected Utility Maximization," American Economic Review, American Economic Association, vol. 77(3), pages 421-30, June.
  7. Markowitz, Harry M, 1991. " Foundations of Portfolio Theory," Journal of Finance, American Finance Association, vol. 46(2), pages 469-77, June.
  8. Woodland, Linda M & Woodland, Bill M, 1994. " Market Efficiency and the Favorite-Longshot Bias: The Baseball Betting Market," Journal of Finance, American Finance Association, vol. 49(1), pages 269-79, March.
  9. Fred D. Arditti, 1967. "Risk And The Required Return On Equity," Journal of Finance, American Finance Association, vol. 22(1), pages 19-36, 03.
  10. Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
  11. Alderfer, Clayton P & Bierman, Harold, Jr, 1970. "Choices with Risk: Beyond the Mean and Variance," The Journal of Business, University of Chicago Press, vol. 43(3), pages 341-53, July.
  12. Levy, H & Markowtiz, H M, 1979. "Approximating Expected Utility by a Function of Mean and Variance," American Economic Review, American Economic Association, vol. 69(3), pages 308-17, June.
  13. Tsiang, S C, 1972. "The Rationale of the Mean-Standard Deviation Analysis, Skewness Preference, and the Demand for Money," American Economic Review, American Economic Association, vol. 62(3), pages 354-71, June.
  14. Bailey, Martin J & Olson, Mancur & Wonnacott, Paul, 1980. "The Marginal Utility of Income Does not Increase: Borrowing, Lending, and Friedman-Savage Gambles," American Economic Review, American Economic Association, vol. 70(3), pages 372-79, June.
  15. Asch, Peter & Quandt, Richard E, 1987. "Efficiency and Profitability in Exotic Bets," Economica, London School of Economics and Political Science, vol. 54(215), pages 289-98, August.
  16. Woodland, Bill M & Woodland, Linda M, 1991. "The Effects of Risk Aversion on Wagering: Point Spread versus Odds," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 638-53, June.
  17. Francis, Jack Clark, 1975. "Skewness and Investors' Decisions," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(01), pages 163-172, March.
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