Main Article Content

Adi Schnytzer
Sara Westreich


There have been many attempts, theoretical and empirical, to explain the persistence of a favorite-longshot bias in various horse betting markets. Most recently, Snowberg and Wolfers (2010) have shown that the data for the US markets support a “misperceptions of probability” approach in line with prospect theory over a neoclassical approach of the Quandt (1986) type. However, their paper suffers from two basic difficulties which beset much of this literature. First, the theoretical model used fails to allow for the existence of horse betting markets which either display no such bias (or a reverse bias) as in Hong Kong and at least one large Australian market (Busche and Hall, 1988, Schnytzer, Shilony and Thorne, 2003 and Luppi and Schnytzer, 2008). Second, econometric testing and theoretical modeling are facilitated by the highly unrealistic assumption that the betting population is homogeneous with respect to either information or attitude to risk or (usually) both. Our purpose is to show that allowing for heterogeneous betting populations (in terms of both attitude to risk and access to information) permits the explanation for the different biases (or their absence) observed in different markets accommodating both a framework of rational bettors and the requirements of prospect theory. We conclude with empirical support for our model.

Article Details



Aumann, R.J., Serrano, R.,(2008). “An Economic Index of Riskiness”, Journal of Political Economy, 116, no. 5, 810–836.

Busche, K. and C. D. Hall, (1988), “An Exception to the Risk Preference Anomaly”, Journal of Business, 61, no. 3, 337-346.

Busche, K., (1994), “Efficient Market Results in an Asian Setting”, in Hausch, D. B., Lo V. S. Y. and W. T. Ziemba, Efficiency of Racetrack Betting Markets, Academic Press, 615-616.

Friedman, Milton; Savage, L. J. (1948). "Utility Analysis of Choices Involving Risk". Journal of Political Economy 56 (4): 279–304.

Griffith, R. M., (1949), “Odds Adjustments by American Horse-Racing Bettors”, American Journal of Psychology 62, 290-294.

Hurley, W. and L. McDonough, (1996), “The Favourite-Longshot Bias in Parimutuel Betting: A Clarification of the Explanation that Bettors Like to Bet Longshots”, Economics Letters, 52, Issue 3, 275-278.

Kahneman, D. and A. Tversky, (1979), “Prospect Theory: An Analysis of Decision under Risk”, Econometrica, 47, no.2, 263–292.

Leong, S. M. and K. G. Lim, (1994), “Cross-Track Betting: Is the Grass Greener on the Other Side”, in Hausch, D. B., Lo V. S. Y. and W. T. Ziemba, Efficiency of Racetrack Betting Markets, Academic Press, 617-629.

Luppi, B. and A. Schnytzer, (2008), “Painful Regret and Elation at the Track”, Journal of Gambling Business and Economics, 2, No. 3, 85-99.

Quandt, R. E., (1986), “Betting and Equilibrium”, Quarterly Journal of Economics, 101, no. 1, 201-207.

Shin, Hyun Song (1993), "Measuring the Incidence of Insider Trading in a Market for State-Contingent Claims," Economic Journal 103, 420: 1141-1153.

Shin, Hyun Song (1992), "Prices of State Contingent Claims with Insider Traders and F/l Bias," Economic Journal 102,411: 426-435.

Shin, Hyun Song (1991), "Optimal Betting Odds against Insider Traders," Economic Journal 101,408: 1179-1185.

Schnytzer, A. and Y. Shilony, (1995), “Inside-Information in a Betting Market”, Economic Journal, 105, 963-971.

Schnytzer, A., Shilony, Y. and R. Thorne, (2003), “On the Marginal Impact of Information and Arbitrage”, in L. Vaughan Williams (ed.) The Economics of Gambling, Routledge, 80-94.

Schnytzer, A. and Y. Shilony, (2003), “Is the Presence of Insider Trading Necessary to Give Rise to a Favourite-Longshot Bias?”, in L. Vaughan Williams (ed.) The Economics of Gambling, Routledge, 14-17.

Schnytzer, A. and Y. Shilony, (2005), “Insider Trading and Bias in a Market for State-Contingent Claims”, in L. Vaughn Williams (ed.) Information Efficiency in Financial and Betting Markets, Cambridge University Press, 287-312.

Schnytzer, A. and S. Westreich, (2013), Economics Letters 118 (2013) 493–496

Snowberg, E. and J. Wolfers, (2010), “Explaining the Favorite-Long Shot Bias: Is it Risk-Love or Misperceptions?”, Journal of Political Economy, 118, no. 4, 723-746.

Thaler, R.H. and W.T. Ziemba, (1988), “Anomalies - Parimutuel Betting Markets: Racetracks and Lotteries”, Journal of Economic Perspectives, 2, 161-74.

Vaughan Williams, L. and D. Paton, (1997), Why is there a Favourite-Longshot Bias in British Racetrack Betting Markets? Economic Journal, 107, 150-158.