What drives biased odds in sports betting markets: Bettors’ irrationality and the role of bookmakers

Shingo Goto and Toru Yamada

International Review of Economics & Finance, 2023, vol. 86, issue C, 252-270

Abstract: In sports betting markets, bookmakers may take speculative exposures to the game outcomes when they can assess the probabilities better than others. We propose a simple model of fixed-odds betting markets in which bookmakers tilt their odds to maximize their own speculative profits. They do so by accommodating bettors’ irrationality, thereby reinforcing systematic biases in betting markets. In European football betting markets, the Favorite-Longshot Bias and the Hot-Hand Bias persist despite the increased competition. This is difficult to explain only by bettors’ irrationality but consistent with the predicted odds-setting behavior of bookmakers. We discuss the implications for financial market anomalies.

Keywords: Longshot; Hot-Hand; Prospect theory; Efficiency; Betting (search for similar items in EconPapers)
JEL-codes: G14 G19 G29 L83 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S105905602300059X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:86:y:2023:i:c:p:252-270

DOI: 10.1016/j.iref.2023.03.002

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().