nep-spo New Economics Papers
on Sports and Economics
Issue of 2007‒12‒08
one paper chosen by
Joao Carlos Correia Leitao
University of the Beira Interior

  1. Bookmaker and pari-mutuel betting: Is a (reverse) favourite-longshot bias built-in? By Alexander K. Koch; Hui-Fai Shing

  1. By: 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.
    Keywords: Gambling; Favourite-Lonshot Bias; Bookmaker betting; Parimutuel Betting; Breakage, Tick Size.
    JEL: G13 L13 L83
    Date: 2007–11

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