IDEAS home Printed from https://ideas.repec.org/p/osf/socarx/w32ue_v1.html

The ‘Sleeping Giant’: A Behavioral Anomaly in Prediction Markets

Author

Listed:
  • Vaze, Atharva

    (RoboThink)

Abstract

This paper explores a behavioral phenomenon in sports economics: human tendencies to overbet on more well-known teams—known as “dynasties”—in playoff series, especially when these teams are statistical underdogs. In an emerging world of prediction markets, it is important to not only identify market inefficiencies but also to understand the underlying behavioral factors, as this phenomenon may be present in other liquid markets. Using 12 seasons of NBA betting data (2008–2020) with Elo-based benchmarks, this study found betting markets tend to overprice dynasty underdogs by a mean bias of +10.43 percentage points (p < 0.0001), while non-dynasty underdogs show no statistically significant bias (+0.08pp, p = 0.82), confirming the effect is identity-specific rather than general model error. This mispricing yields a betting strategy with +15.81% gross ROI (62.9% win rate) and persists across the full 12-season sample despite high market liquidity. These findings show that bettors systematically overweight team reputation, creating mispricings that persist despite being exploitable.

Suggested Citation

  • Vaze, Atharva, 2026. "The ‘Sleeping Giant’: A Behavioral Anomaly in Prediction Markets," SocArXiv w32ue_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:w32ue_v1
    DOI: 10.31235/osf.io/w32ue_v1
    as

    Download full text from publisher

    File URL: https://osf.io/download/698f907513f8ed4489dfc7b6/
    Download Restriction: no
    File URL: https://libkey.io/10.31235/osf.io/w32ue_v1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Brown, William O & Sauer, Raymond D, 1993. "Does the Basketball Market Believe in the Hot Hand? Comment," American Economic Review, American Economic Association, vol. 83(5), pages 1377-1386, December.
    2. Steven D. Levitt, 2004. "Why are gambling markets organised so differently from financial markets?," Economic Journal, Royal Economic Society, vol. 114(495), pages 223-246, April.
    3. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-174, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Robin Maximilian Stetzka & Stefan Winter, 2023. "How rational is gambling?," Journal of Economic Surveys, Wiley Blackwell, vol. 37(4), pages 1432-1488, September.
    2. Marius Ötting & Christian Deutscher & Carl Singleton & Luca De Angelis, 2022. "Gambling on Momentum," Economics Discussion Papers em-dp2022-10, Department of Economics, University of Reading.
      • Marius Otting & Christian Deutscher & Carl Singleton & Luca De Angelis, 2022. "Gambling on Momentum," Papers 2211.06052, arXiv.org.
    3. Marius Ötting & Christian Deutscher & Carl Singleton & Luca De Angelis, 2025. "Betting on momentum in contests," Economic Inquiry, Western Economic Association International, vol. 63(4), pages 1066-1089, October.
    4. Montone, Maurizio, 2021. "Optimal pricing in the online betting market," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 344-363.
    5. Marius Ötting & Christian Deutscher & Carl Singleton & Luca De Angelis, 2023. "Gambling on Momentum in Contests," Economics Discussion Papers em-dp2023-08, Department of Economics, University of Reading.
    6. Jonas Vandenbruaene & Marc De Ceuster & Jan Annaert, 2022. "Efficient Spread Betting Markets: A Literature Review," Journal of Sports Economics, , vol. 23(7), pages 907-949, October.
    7. Kai Fischer & Justus Haucap, 2022. "Home advantage in professional soccer and betting market efficiency: The role of spectator crowds," Kyklos, Wiley Blackwell, vol. 75(2), pages 294-316, May.
    8. Andrew Grant & David Johnstone & Oh Kang Kwon, 2008. "Optimal Betting Strategies for Simultaneous Games," Decision Analysis, INFORMS, vol. 5(1), pages 10-18, March.
    9. S Lessmann & M-C Sung & J E V Johnson, 2011. "Towards a methodology for measuring the true degree of efficiency in a speculative market," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 62(12), pages 2120-2132, December.
    10. Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Long Shot Bias: Is it Risk-Love or Misperceptions?," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 723-746, August.
    11. Angelini, Giovanni & De Angelis, Luca & Singleton, Carl, 2022. "Informational efficiency and behaviour within in-play prediction markets," International Journal of Forecasting, Elsevier, vol. 38(1), pages 282-299.
    12. Babatunde Buraimo & David Peel & Rob Simmons, 2013. "Systematic Positive Expected Returns in the UK Fixed Odds Betting Market: An Analysis of the Fink Tank Predictions," IJFS, MDPI, vol. 1(4), pages 1-15, December.
    13. 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.
    14. Schmidt, Martin B. & Stuck, Lee M., 2009. "Point shaving: Corruption in NCAA college football?," Economics Letters, Elsevier, vol. 105(1), pages 90-92, October.
    15. 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.
    16. Jan van Ours, 2025. "Non-Transitive Patterns in Sports Match Outcomes: A Profitable Anomaly," Tinbergen Institute Discussion Papers 25-015/V, Tinbergen Institute.
    17. Joshua B. Miller & Adam Sanjurjo, 2014. "A Cold Shower for the Hot Hand Fallacy," Working Papers 518, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    18. Dixon, Mark J. & Pope, Peter F., 2004. "The value of statistical forecasts in the UK association football betting market," International Journal of Forecasting, Elsevier, vol. 20(4), pages 697-711.
    19. David Forrest & Robert Simmons, 2008. "Sentiment in the betting market on Spanish football," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 119-126.
    20. Angelini, Giovanni & De Angelis, Luca, 2019. "Efficiency of online football betting markets," International Journal of Forecasting, Elsevier, vol. 35(2), pages 712-721.

    More about this item

    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:osf:socarx:w32ue_v1. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: OSF (email available below). General contact details of provider: https://socarxiv.org .

    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.