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

Whelan, Karl (2023): Risk Aversion and Favorite-Longshot Bias in a Competitive Fixed-Odds Betting Market.

Abstract

Research on sports betting has generally found a favorite-longshot bias: Bets on longshots lose more than bets on favorites. Existing research 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 parimutuel 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 favorite-longshot bias resembling the empirical evidence.

• Item Type: MPRA Paper
• Language: English
• Keywords: Sports Betting, Gambling, Favorite-Longshot Bias, Risk Aversion
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; L - Industrial Organization > L8 - Industry Studies: Services > L83 - Sports ; Gambling ; Restaurants ; Recreation ; Tourism

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