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

Alexander Koch and Hui-Fai Shing

No 07/04, Royal Holloway, University of London: Discussion Papers in Economics from 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. (search for similar items in EconPapers)
JEL-codes: G13 L13 L83 (search for similar items in EconPapers)
Date: 2007-11
New Economics Papers: this item is included in nep-spo and nep-upt
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Related works:
Journal Article: Bookmaker and Pari-Mutuel Betting: Is a (Reverse) Favourite-Longshot Bias Built-In? (2008)
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