The Favorite-Longshot Bias in Sequential parimutuel Betting with Non-Expected Utility Players

Frederic Koessler, Anthony Ziegelmeyer and Marie-Hélène Broihanne

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: This paper analyzes a model of sequential parimutuel betting described as a two-horse race with a finite number of noise bettors and a finite number of strategic and symmetrically informed bettors. For generic objective probabilities that the favorite wins the race, a unique subgame perfect equilibrium is characterized. Additionally, two explanations for the favorite-longshot bias---according to which favorites win more often than the market's estimate of their winning chances imply---are offered. It is shown that this robust anomalous empirical regularity might be due to the presence of transaction costs and/or to strategic bettors' subjective attitude to probabilities.

Keywords: Parimutuel betting; Sequential decisions; Favorite-longshot bias; Non-expected utility under risk. (search for similar items in EconPapers)
JEL-codes: C72 D81 (search for similar items in EconPapers)
Date: 2002
New Economics Papers: this item is included in nep-spo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: The Favorite-Longshot Bias in Sequential Parimutuel Betting with Non-Expected Utility Players (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ulp:sbbeta:2002-12

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