Risk aversion and favourite–longshot bias in a competitive fixed‐odds betting market

Risk aversion and favourite–longshot bias in a competitive fixed‐odds betting market

Abstract Research on sports betting has generally found a favourite–longshot bias: bets on longshots lose more than bets on favourites. Existing research focuses largely on pari‐mutuel betting, but favourite–longshot bias is also evident in fixed‐odds online betting markets of the type that are grow...

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Bibliographic Details
Published in:Economica (London) Vol. 91; no. 361; pp. 188 - 209
Main Author: Whelan, Karl
Format: Journal Article
Language:English
Published: London Blackwell Publishing Ltd 01-01-2024
Subjects:
Bias
Gamblers
Risk
Sports
Online Access:Get full text
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Summary:Abstract Research on sports betting has generally found a favourite–longshot bias: bets on longshots lose more than bets on favourites. Existing research focuses largely on pari‐mutuel betting, but favourite–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 markets. We show how disagreement among gamblers and risk aversion on the part of bookmakers in a competitive market can produce a pattern of favourite–longshot bias resembling the empirical evidence.
ISSN:0013-0427
1468-0335
DOI:10.1111/ecca.12500