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Investigating the roots of favourite-longshot bias: an analysis of decision-making by supply and demand-side agents in parallel betting markets

Investigating the roots of favourite-longshot bias: an analysis of decision-making by supply and demand-side agents in parallel betting markets
Investigating the roots of favourite-longshot bias: an analysis of decision-making by supply and demand-side agents in parallel betting markets
This paper offers new insights into the behavioural origins of the favourite-longshot bias - an established feature of betting markets, whereby longshots win less often than the subjective probabilities imply and favourites more often. A number of alternative explanations has been offered for this phenomenon but the main debate focuses on whether it is caused by the behaviour of those supplying betting markets (bookmakers) or of the demand-side agents in these markets (bettors) . This study analyses a new data source which offers detailed information for a large sample of recent UK horseraces on decision-making behaviour within the parimutuel and the parallel bookmaker-based betting markets. The results offer strong evidence for the existence of the favourite-longshot bias in bookmaker-based markets, with a corresponding absence of such an effect in the parimutuel case. These results offer support for the view that the origins of the favourite-longshot bias lie principally in the decisions of bookmakers rather than in the decisions of bettors.
favourite-longshot, decision making, bias, risk, betting, gambling
0894-3257
413-430
Bruce, Alistair C.
6d9f1a51-38a8-4011-a792-bfc82040fac4
Johnson, Johnnie E.V.
674f4c91-b889-4566-82cd-c0a33b4beaac
Bruce, Alistair C.
6d9f1a51-38a8-4011-a792-bfc82040fac4
Johnson, Johnnie E.V.
674f4c91-b889-4566-82cd-c0a33b4beaac

Bruce, Alistair C. and Johnson, Johnnie E.V. (2000) Investigating the roots of favourite-longshot bias: an analysis of decision-making by supply and demand-side agents in parallel betting markets. Journal of Behavioral Decision Making, 13 (4), 413-430. (doi:10.1002/1099-0771(200010/12)13:4<413::AID-BDM360>3.0.CO;2-6).

Record type: Article

Abstract

This paper offers new insights into the behavioural origins of the favourite-longshot bias - an established feature of betting markets, whereby longshots win less often than the subjective probabilities imply and favourites more often. A number of alternative explanations has been offered for this phenomenon but the main debate focuses on whether it is caused by the behaviour of those supplying betting markets (bookmakers) or of the demand-side agents in these markets (bettors) . This study analyses a new data source which offers detailed information for a large sample of recent UK horseraces on decision-making behaviour within the parimutuel and the parallel bookmaker-based betting markets. The results offer strong evidence for the existence of the favourite-longshot bias in bookmaker-based markets, with a corresponding absence of such an effect in the parimutuel case. These results offer support for the view that the origins of the favourite-longshot bias lie principally in the decisions of bookmakers rather than in the decisions of bettors.

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More information

Published date: 2000
Keywords: favourite-longshot, decision making, bias, risk, betting, gambling
Organisations: Management

Identifiers

Local EPrints ID: 36430
URI: http://eprints.soton.ac.uk/id/eprint/36430
ISSN: 0894-3257
PURE UUID: de814e0b-a4f3-4849-b972-9d5e15d164c5

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Date deposited: 27 Jul 2006
Last modified: 15 Jul 2019 19:04

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Contributors

Author: Johnnie E.V. Johnson

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