Bookmaker and Pari-Mutuel Betting: Is a (Reverse) Favourite-Longshot Bias Built-In?

Alexander Koch and Hui-Fai Shing

Journal of Prediction Markets, 2008, vol. 2, issue 2, 29-50

Abstract: A widely documented empirical regularity in gambling markets is that bets on high probability events (a race won by a “favourite”) have higher expected returns than bets on low probability events (a “longshot” wins). Such favourite-longshot (FL) biases however appear to be more severe and persistent in bookmaker markets than in pari-mutuel markets; the latter sometimes exhibit no bias or a reverse FL bias. Our results help understand these differences: the odds grid in bookmaker markets leads to a built-in FL bias, whereas that used in pari-mutuel betting pushes these markets toward a reverse FL bias.

Keywords: GAMBLING; FAVOURITE-LONGSHOT BIAS; BOOKMAKER BETTING; PARIMUTUEL BETTING; BREAKAGE; TICK SIZE (search for similar items in EconPapers)
JEL-codes: L83 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (6)

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Working Paper: Bookmaker and pari-mutuel betting: Is a (reverse) favourite-longshot bias built-in? (2007)
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