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Towards an Understanding of the Origins of the Favourite–Longshot Bias: Evidence from Online Poker Markets, a Real‐money Natural Laboratory
Author(s) -
Vaughan Williams Leighton,
Sung MingChien,
FraserMackenzie Peter A. F.,
Peirson John,
Johnson Johnnie E. V.
Publication year - 2018
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/ecca.12200
Subject(s) - favourite , phenomenon , economics , differential (mechanical device) , advertising , financial economics , econometrics , positive economics , business , political science , law , engineering , physics , quantum mechanics , aerospace engineering
Evidence of differential returns to bets placed with different probabilities of success has revealed a broadly systematic tendency for low/high‐probability events to be relatively overbet/underbet, a phenomenon known as the favourite–longshot bias. While most of the literature focuses on sports, especially horse racing, we report here the existence of the same phenomenon in online poker games. We find that misperception rather than risk‐love offers the best explanation for the behaviour that we identify. This paper contributes to the more general literature explaining betting behaviour as well as the prevalence of the favourite–longshot bias in betting markets.