IDEAS home Printed from https://ideas.repec.org/p/hol/holodi/0704.html
   My bibliography  Save this paper

Bookmaker and pari-mutuel betting: Is a (reverse) favourite-longshot bias built-in?

Author

Listed:
  • Alexander K. Koch

    (Department of Economics, Royal Holloway, University of London)

  • Hui-Fai Shing

    (Department of Economics, Royal Holloway, University of London)

Abstract

A widely documented empirical regularity in gambling markets is that bets on high probability events (a race won by a ``favourite'') have higer expected returns than bets on low probability events (a ``longshot'' win). Such favourite-longshot (FL) biases however appear to be more severe and persistent in bookmaker markets than in pari-mutuel markets; the latter sometims exhibit no bias or a revers FL bias. Our results help understand these differences: the odds grid in bookmaker markets leads to a built-in FL bias, wheras that used in pari-mutuel betting pushes these markets toward a reverse FL bias.

Suggested Citation

  • Alexander K. Koch & Hui-Fai Shing, 2007. "Bookmaker and pari-mutuel betting: Is a (reverse) favourite-longshot bias built-in?," Royal Holloway, University of London: Discussion Papers in Economics 07/04, Department of Economics, Royal Holloway University of London.
    • Handle: RePEc:hol:holodi:0704
    as

    Download full text from publisher

    File URL: http://www.rhul.ac.uk/economics/Research/WorkingPapers/pdf/dpe0704.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Isabel Abinzano & Luis Muga & Rafael Santamaria, 2017. "Behavioral Biases Never Walk Alone," Journal of Sports Economics, , vol. 18(2), pages 99-125, February.
    2. Dominic Cortis, 2015. "Expected Values And Variances In Bookmaker Payouts: A Theoretical Approach Towards Setting Limits On Odds," Journal of Prediction Markets, University of Buckingham Press, vol. 9(1), pages 1-14.
    3. 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.
    4. Jaiho Chung & Joon Ho Hwang, 2010. "An Empirical Examination of the Parimutuel Sports Lottery Market versus the Bookmaker Market," Southern Economic Journal, John Wiley & Sons, vol. 76(4), pages 884-905, April.
    5. Zhang, Chi & Thijssen, Jacco, 2022. "On sticky bookmaking as a learning device in horse-racing betting markets," Journal of Economic Dynamics and Control, Elsevier, vol. 144(C).
    6. Isabel Abinzano & Luis Muga & Rafael Santamaria, 2019. "Hidden Power of Trading Activity: The FLB in Tennis Betting Exchanges," Journal of Sports Economics, , vol. 20(2), pages 261-285, February.

    More about this item

    Keywords

    Gambling; Favourite-Lonshot Bias; Bookmaker betting; Parimutuel Betting; Breakage; Tick Size.;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hol:holodi:0704. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Claire Blackman (email available below). General contact details of provider: http://www.rhul.ac.uk/economics/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.