2007-12-08 papers

on Sports and Economics

Issue of 2007–12–08
one paper chosen by
Humberto Barreto, DePauw University

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

Bookmaker and pari-mutuel betting: Is a (reverse) favourite-longshot bias built-in?

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
URL:	https://d.repec.org/n?u=RePEc:hol:holodi:0704

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