How Does Inside Information Affect Sports Betting Odds?

Karl Whelan ()

No 18315, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We describe how the presence of insiders with superior information about potential outcomes of sporting events affects odds set by bookmakers, using a generalized version of the model in Shin (1991). The model has been widely cited as an explanation for the pattern of favorite-longshot bias observed in fixed-odds betting markets. We show that disagreement among those bettors without inside information causes favorite-longshot bias. The presence of insiders reduces odds but does not necessarily exacerbate favorite-longshot bias. For realistically calibrated beliefs, the fraction of insiders has a minimal effect on the ratio of favorite to longshot odds and the betting market collapses if this fraction rises above low levels.

JEL-codes: G14 L83 Z20 (search for similar items in EconPapers)
Date: 2023-07
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