 Estimating risk preferences of bettors with different bet sizesEberhard Feess (), Helge Müller and Christoph Schumacher European Journal of Operational Research, 2016, vol. 249, issue 3, 1102-1112 Abstract: We extend the literature on risk preferences of a representative bettor by including odds-dependent bet sizes in our estimations. Accounting for different bet sizes largely reduces the standard errors of all coefficients. Substituting the coefficients from the model with equal bet sizes into the model with odds-dependent sizes leads to a sharp decline in the likelihood which shows that accounting for different amounts is important. Our estimations strongly reject the hypothesis that the overbetting of outcomes with low probabilities (favorite-longshot bias) can be explained by risk-seeking bettors. Depending on the exact specification within cumulative prospect theory, the data can best be described by an overweighting of small probabilities which is more pronounced in the gain domain. Models allowing for two parameters for probability weighting each in the gain- and in the loss domain are superior. Keywords: Applied probability; Betting markets; Favorite-longshot bias; Estimation of risk preferences; Overweighting of small probabilities (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:249:y:2016:i:3:p:1102-1112 DOI: 10.1016/j.ejor.2015.09.053 Access Statistics for this article European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati More articles in European Journal of Operational Research from Elsevier |
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