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Investigating the roots of the favourite–longshot bias: an analysis of decision making by supply‐ and demand‐side agents in parallel betting markets
Author(s) -
Bruce Alistair C,
Johnson Johnnie E. V
Publication year - 2000
Publication title -
journal of behavioral decision making
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.136
H-Index - 76
eISSN - 1099-0771
pISSN - 0894-3257
DOI - 10.1002/1099-0771(200010/12)13:4<413::aid-bdm360>3.0.co;2-6
Subject(s) - favourite , economics , demand side , sample (material) , supply and demand , supply side , microeconomics , econometrics , financial economics , philosophy , theology , chemistry , chromatography
This paper offers new insights into the behavioural origins of the ‘favourite–longshot’ bias — an established feature of betting markets, whereby longshots win less often than the subjective probabilities imply and favourites more often. A number of alternative explanations has been offered for this phenomenon but the main debate focuses on whether it is caused by the behaviour of those supplying betting markets (bookmakers) or of the demand‐side agents in these markets (bettors) . This study analyses a new data source which offers detailed information for a large sample of recent UK horseraces on decision‐making behaviour within the parimutuel and the parallel bookmaker‐based betting markets. The results offer strong evidence for the existence of the ‘favourite–longshot’ bias in bookmaker‐based markets, with a corresponding absence of such an effect in the parimutuel case. These results offer support for the view that the origins of the ‘favourite–longshot’ bias lie principally in the decisions of bookmakers rather than in the decisions of bettors. Copyright © 2000 John Wiley & Sons, Ltd.