Bets and bids: favorite-longshot bias and winner's curse
A well-documented anomaly in racetrack betting is that the expected return per dollar bet on a horse increases with the probability of the horse winning. This socalled "favorite- longshot bias" is at odds with the presumptions of market efficiency. We offer a new solution to this much-debated puzzle which is related to another famous anomaly. We show that the bias can be explained by the same behavioral assumption that underlies the well-known "winner's curse" in common value auctions.
|Date of creation:||16 Jun 1997|
|Date of revision:|
|Note:||Type of Document - WordPerfect; prepared on IBM PC; to print on HP Laserprinter 4; pages: 22 ; figures: included|
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