Prospect Theory and the Favorite Long-Shot Bias in Baseball

James Nutaro ()
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James Nutaro: Computational Sciences and Engineering Division, Oak Ridge National Laboratory, Oak Ridge, TN 37831, USA

Risks, 2023, vol. 11, issue 5, 1-11

Abstract: We provide new evidence of a favorite long-shot bias for bets placed on baseball games. Our analysis uses the difference of mean run differentials as an observable proxy for the probability of a team to win. When baseball is viewed through this proxy, we see that bettors believe favorites are less likely to win than they actually are and long-shots more likely. This result is consistent with prospect theory, which suggests that large and small probabilities are poorly estimated when making decisions with risk.

Keywords: sports betting; prospect theory; favorite long-shot bias (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
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