The Link Between Information and the Favorite-longshot Bias in Pari-mutuel Wagering Markets

Authors

  • Andy Weinbach

DOI:

https://doi.org/10.5750/jgbe.v2i1.523

Keywords:

Favorite-longshot bias, market restrictions, wagering markets

Abstract

This paper examines a database of more than 45,000 greyhound races over an eight year period at Dairyland Greyhound Park to test for and examine the nature of the favorite-longshot bias.  While the longest odds dogs are collectively found to be over-bet for the sample as a whole, the bias is found to diminish after the introduction of Off-Track Betting.  Further, maiden races, among inexperienced dogs, are shown to exhibit the traditional favorite-longshot bias, while non-maiden races do not.  These results may help explain why researchers have found the bias at some tracks, but not others.

References

M M Ali ‘Probability and utility estimates for racetrack bettors’ Journal of Political Economy (1977) 85 803-15. Reprinted in Hausch et al., 1994.

P Asch B G Malkiel and R E Quandt ‘Market efficiency in racetrack betting’ Journal of Business (1986) 59 157-60.

K Busche and C D Hall ‘An exception to the risk preference anomaly’ Journal of Business (1988) 61 337-46.

K W Busche and W D Walls ‘Breakage and betting market efficiency: evidence from the horse track’ Applied Economics Letters (2001) 8 601-4.

D Coleman ‘New light on the longshot bias’ Applied Economics (2004) 36 315-26.

G P Dwyer A W Williams and R C Battalio and T I Mason ‘Tests of rational expectations in a stark setting’ Economic Journal (1993) 103 586-601.

J Golec and M Tamarkin ‘The degree of inefficiency in the football betting market’ Journal of Financial Economics (1991) 30 311-23.

M Gramm and D H Owens ‘Efficiency in pari-mutuel betting markets across wagering pools in the simulcast era’ Southern Economic Journal (2006) 72 926-37.

R M Griffith ‘Odds adjustments by American horse race bettors’ American Journal of Psychology (1949) 62 290-4. Reprinted in Hausch et al. (1994).

W H McGlothlin ‘Stability of choices among uncertain alternatives’ American Journal of Psychology (1956) 69 604-15. Reprinted in Hausch et al. (1994).

R J Paul and A P Weinbach ‘Market efficiency and a profitable betting rule: Evidence from totals on professional football’ Journal of Sports Economics (2002) 3 256-63.

R Sauer ‘The economics of wagering markets’ Journal of Economic Literature (1998) 36 2021-64.

P Slovic F Baruch and S Lichtenstein ‘Facts versus fears: Understanding perceived risk’ in Judgment Under Uncertainty: Heuristics and Biases (Cambridge, Cambridge University Press, 1982).

R S Sobel and S T Raines ‘An examination of the empirical derivatives of the favourite longshot bias in racetrack betting’ Applied Economics (2003) 35 371-85.

D Terrell and A Farmer ‘Optimal betting and efficiency in parimutuel betting markets with information costs’ The Economic Journal (1996) 106 846-68.

R H Thaler and W T Ziemba ‘Anomalies – Pari-mutuel betting markets – Racetracks and lotteries’ Journal of Economic Perspectives (1988) 2 161-74.

W K Viscusi and C O’Connor ‘Adaptive responses to chemical labeling: Are workers Bayesian decision makers?’ American Economic Review (1984) 74 942-56.

Vaughan Williams, L and D Paton ‘Why are some favourite-longshot biases positive and others negative?’ Applied Economics (1998) 30 1505-10.

Published

2013-01-02

Issue

Section

Articles