Why Is There a Favourite-Longshot Bias in British Racetrack Betting Markets?

Leighton Vaughan Williams () and David Paton

Economic Journal, 1997, vol. 107, issue 440, 150-58

Abstract: In this paper, the authors employ a large new data set to examine explanations of the tendency for favorites to be under-bet and longshots over-bet in recent British racetrack betting markets. They demonstrate that both demand-and-supply side factors can explain this favorite-longshot bias and propose new empirical tests to identify the influence of insider trading on the bias. The results suggest that the adverse selection problem faced by bookmakers, in the context of bettors who may possess superior information, is capable of explaining at least some of the observed bias. Copyright 1997 by Royal Economic Society.

Date: 1997
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