Late Informed Betting and the Favourite-Longshot Bias

Marco Ottaviani and Sørensen, Peter Norman
Authors registered in the RePEc Author Service: Peter Norman Sørensen

No 4092, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: According to the favorite-longshot bias observed in pari-mutuel betting, the final distribution of bets overestimates the winning chance of longshots. This Paper proposes an explanation of this bias based on late betting by small privately informed bettors. These bettors have an incentive to protect their private information and bet at the last minute, without knowing the bets simultaneously placed by the others. Once the distribution of bets is revealed, if bets are more informative than noisy, all bettors can recognize that the longshot is less likely to win than indicated by the distribution of bets.

Keywords: Parimutuel betting; Favourite-longshot bias; Private information; Timing (search for similar items in EconPapers)
JEL-codes: D43 D82 D84 G13 L83 (search for similar items in EconPapers)
Date: 2003-10
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Working Paper: Late Informed Betting and the Favorite-Longshot Bias (2003)
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