Risk Aversion and Favorite-Longshot Bias in a Competitive Fixed-Odds Betting Market

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Title: Risk Aversion and Favorite-Longshot Bias in a Competitive Fixed-Odds Betting Market
Authors: Whelan, Karl
Permanent link: http://hdl.handle.net/10197/13074
Date: Aug-2022
Online since: 2022-08-17T15:45:02Z
Abstract: Research on sports betting markets has generally found a favorite-longshot bias, the empirical pattern for loss rates for bets on longshots to be higher than for favorites, which implies the odds do not reflect the underlying probabilities. The existing literature focuses largely on pari-mutuel betting but favorite-longshot bias is also evident in fixed-odds online betting markets of the type that are growing rapidly around the world. Explanations for this bias in previous work on pari- mutuel markets cannot explain why it would be a feature of competitive fixed-odds betting mar- kets. We show how disagreement among gamblers and risk-aversion on the part of bookmakers in a competitive market can produce a pattern of favorite-longshot bias resembling the empirical evidence.
Type of material: Working Paper
Publisher: University College Dublin. School of Economics
Start page: 1
End page: 34
Series/Report no.: UCD Centre for Economic Research Working Paper Series; WP2022/23
Copyright (published version): 2022 the Author
Keywords: Sports bettingGamblingFavorite-longshot bias
JEL Codes: D81; G14; L83
Language: en
Status of Item: Not peer reviewed
This item is made available under a Creative Commons License: https://creativecommons.org/licenses/by-nc-nd/3.0/ie/
Appears in Collections:Economics Working Papers & Policy Papers

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