Assessing Bettors' Ability to Process Dynamic Information: Policy Implications

Regulation is often employed to encourage the provision of readily interpretable, explicit information to betting markets in an effort to promote their efficiency. This approach is supported by a considerable volume of laboratory‐based research which suggests that individuals make poor judgments in the face of implicit, dynamic information. This article investigates to what extent horserace bettors, who have strong incentives to make good probability judgments, require the regulator's protection from such hostile information environments. In particular, we examine the accuracy of the subjective probabilities of bettors concerning 16,344 horses in 1671 races. We find that bettors are skilled in adopting effective heuristics to simplify their dynamic information environment and, even in the face of restricted information, develop well‐calibrated judgments using outcome feedback. A number of factors that help bettors to achieve good calibration are identified and the implications for market regulation are discussed.