The house doesn’t always win: Evidence of anchoring among Australian bookies

Patrick McAlvanah and Charles Moul

Journal of Economic Behavior & Organization, 2013, vol. 90, issue C, 87-99

Abstract: We examine Australian horseracing bookmakers’ responses to late scratches, instances in which a horse is abruptly withdrawn after betting has commenced. Our observed bookies exhibit anchoring on the original odds and fail to re-adjust odds fully on the remaining horses after a scratch, thereby earning lower profit margins and occasionally creating nominal arbitrage opportunities for bettors. We also examine which horses’ odds bookies adjust after a scratch and demonstrate diminished profit margins even after controlling for these endogenous adjustments. Our results indicate that bookies’ adjustments recover approximately 80% of lost profit margin but that bookies forgo the remaining 20% due to systematic under-adjustments.

Keywords: Anchoring bias; Behavioral economics; Fixed-odds wagering; Natural experiment (search for similar items in EconPapers)
JEL-codes: D03 D49 G12 L83 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:90:y:2013:i:c:p:87-99

DOI: 10.1016/j.jebo.2013.03.009

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