Overconfidence and Financial Behavior in Online Betting Markets

Do bettors misperceive expected returns, and does bringing their beliefs closer to the regulatory benchmark change betting and financial allocation decisions? Using a survey experiment in Brazil, we document that bettors are motivated by financial gain and entertainment and expect to receive approximately R$1.75 for every R$1 wagered, far above the R$0.85 regulatory benchmark. A randomized information treatment lowers bettors’ reported beliefs about expected returns by 28% to 37% but reduces the share of windfall income allocated to betting by only 2.1 percentage points. The treatment has a larger effect on the probability of allocating any money to betting than on the amount allocated among those who continue to bet. A parsimonious model rationalizes these findings: when betting provides substantial direct utility, more accurate beliefs have limited effects on betting expenditure and saving. Still, reducing overconfidence limits expected wealth losses, because overconfident bettors consume more today in anticipation of betting winnings that do not materialize on average. Information disclosure may therefore make beliefs more accurate without substantially reducing betting expenditure.