Racial biases and market outcomes: "White men can't jump," but would you bet on it?

Igan, Deniz and Pinheiro, Marcelo and Smith, John (2012): Racial biases and market outcomes: "White men can't jump," but would you bet on it?

Abstract

We identify an otherwise efficient market in which racial biases affect market outcomes. In particular, we examine data on point spreads for NBA games over the 15 seasons from 1993-94 to 2007-08. We find evidence that a more black team tends to face a larger point spread and that these teams perform worse against the spread. These biased outcomes are significantly large and persistent so that we are able to identify profit opportunities. We also find evidence that the biased spread is set by the bookmakers rather than being moved as a result of excessive betting on the more black team. These findings are consistent with information-based discrimination where mistaken beliefs persist even though they are financially disadvantageous, and, more importantly, easily recognizable and correctable.

• Item Type: MPRA Paper
• Language: English
• Keywords: Market efficiency; Racial biases; Belief-based discrimination
• Subjects: D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; J - Labor and Demographic Economics > J1 - Demographic Economics > J15 - Economics of Minorities, Races, Indigenous Peoples, and Immigrants ; Non-labor Discrimination; G - Financial Economics > G0 - General > G00 - General

References

Akerlof, George A, 1980, "A Theory of Social Custom, of Which Unemployment May be One Consequence," Quarterly Journal of Economics, Vol. 94, No. 4, pp. 749-775.

Altonji, Joseph and Rebecca Blank, 1999, "Race and Gender in the Labor Market," Handbook of Labor Economics, Vol. 3, pp. 3143-3259.

Antonovics, Kate and Brian G. Knight, 2009, "A New Look at Racial Profiling: Evidence from the Boston Police Department," Review of Economics and Statistics, Vol. 91, No. 1, pp. 163-177.

Arrow, Kenneth J., 1973, "The Theory of Discrimination," in Orley Ashenfelter and Albert Rees, eds. Discrimination in Labor Markets, Princeton, NJ: Princeton University Press, pp. 3-33.

Avery, Christopher and Judith Chevalier, 1999, "Identifying Investor Sentiment from Price Paths: The Case of Football Betting," Journal of Business, Vol. 72, No. 4, pp. 493-521.

Ayres, Ian and Peter Siegelman, 1995, "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, Vol. 85, No. 3, pp. 304-321.

Becker, Gary, 1957, The Economics of Discrimination, Chicago, IL: University of Chicago Press.

Bertrand, Marianne and Sendhil Mullainathan, 2004, "Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination," American Economic Review, Vol. 94, No. 4, pp. 991-1013.

Biernat, Monica and Melvin Manis, 1994, "Shifting Standards and Stereotype-Based Judgments," Journal of Personality and Social Psychology, Vol. 66, No. 1, pp. 5-20.

Braun, Sebastian and Michael Kvasnicka, 2008, "Against All Odds? -- National Sentiment and Wagering on European Football," working paper, Ruhr-Universitat Bochum # 42.

Brown, William O. and Raymond D. Sauer, 1993, "Fundamentals or Noise? Evidence from the Professional Basketball Betting Market," Journal of Finance, Vol. 48, No. 4, pp. 1193-1209.

Camerer, Colin F., 1989, "Does the Basketball Market Believe in the `Hot Hand'?," American Economic Review, Vol. 79, No. 5 (Dec., 1989), pp. 1257-1261.

Camerer, Colin F., George Loewenstein, and Matthew Rabin, eds. 2004, Advances in Behavioral Economics, Princeton, NJ: Princeton University Press.

Charles, Kerwin K. and Jonathan Guryan, 2008, "Prejudice and Wages: An Empirical Assessment of Becker's The Economics of Discrimination," Journal of Political Economy, Vol. 116, No. 5, pp. 773-809.

Cheryan, Sapna and Galen V. Bodenhausen, 2000, "When Positive Stereotypes Threaten Intellectual Performance: The Psychological Hazards of Model Minority Status," Psychological Science, Vol. 11, No. 5, pp. 399-402.

Darity Jr., William A. and Patrick L. Mason, 1998, "Evidence on Discrimination in Employment: Codes of Color, Codes of Gender," Journal of Economic Perspectives, Vol. 12, No. 2, pp. 63-90.

DellaVigna, Stefano, 2009, "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, Vol. 47, No. 2, pp. 315-72.

Entine, Jon, 2000, Taboo: Why Black Athletes Dominate Sports And Why We Are Afraid To Talk About It. New York, NY: Public Affairs.

Forrest, David and Robert Simmons, 2008, "Sentiment in the Betting Market on Spanish Football," Applied Economics, Vol. 40, pp. 119-126.

George, Nelson, 1999, Elevating the Game: Black Men and Basketball, Lincoln, NE: University of Nebraska Press.

Golec, Joseph and Maurry Tamarkin, 1991, "The Degree of Inefficiency in the Football Betting Market," Journal of Financial Economics, Vol. 30, pp. 311-323.

Grey, Philip K. and Stephen F. Grey, 1997, "Testing Market Efficiency: Evidence From The NFL Sports Betting Market," Journal of Finance, Vol. 52, No. 4, pp. 1725-1737.

Heckman, James J., 1998, "Detecting Discrimination," Journal of Economic Perspectives, Vol. 12, No. 2, pp. 101-116.

Hong, Harrison and Marcin Kacperczyk, 2009, "The Price of Sin: The Effects of Social Norms on Markets," Journal of Financial Economics, Vol. 93, pp. 15-36.

Hong, Harrison and Leonard Kostovetsky, 2011, "Red and Blue Investing: Values and Finance," forthcoming in the Journal of Financial Economics.

Kanazawa, Mark T. and Jonas P. Funk, 2001, "Racial Discrimination in Professional Basketball: Evidence from Nielsen Ratings," Economic Inquiry, Vol. 39, No. 4, pp. 599-608.

Kuypers, T., 2000, "Information Efficiency: An Empirical Study of a Fixed Odds Betting Market," Applied Economics, Vol. 32, pp. 1353-1363.

Larsen, Tim, Joseph Price and Justin Wolfers, 2008, "Racial Bias in the NBA: Implications in Betting Markets," Journal of Quantitative Analysis in Sports, Vol. 4, No. 2, pp. 1-19.

Levitt, Steven D., 2004, "Why are Gambling Markets Organised so Differently from Financial Markets?," Economic Journal, Vol. 114, No. 495, pp. 223-246.

Levitt, Steven D., 2004, "Testing Theories of Discrimination: Evidence from Weakest Link," Journal of Law and Economics, Vol. 47, No. 2, pp. 431-453.

Munnell, Alicia H., Geoffrey M. B. Tootell, Lynn E. Browne and James McEneaney, 1996, "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, Vol. 86, No. 1, pp. 25-53.

Page, Marianne, 1995, "Racial and Ethnic Discrimination in Urban Housing Markets: Evidence from a Recent Audit Study," Journal of Urban Economics, Vol. 38, No. 2, pp. 183-206.

Parsons, Christopher A., Johan Sulaeman, Michael C. Yates and Daniel S. Hamermesh, 2011, "Strike Three: Discrimination, Incentives and Evaluation," American Economic Review, Vol. 101, No. 4, pp. 1410-1435.

Paul, Rodney J. and Andrew P. Weinbach, 2011, "NFL Bettor Biases and Price Setting: Further Tests of the Levitt Hypothesis of Sportsbook Behavior," Applied Economics Letters, Vol. 18, No. 2, 193-197.

Phelps, Edmund S., 1972, "The Statistical Theory of Racism and Sexism," American Economic Review, Vol. 62, pp. 659-61.

Pope, Devin G. and Maurice E. Schweitzer, 2011, "Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes," American Economic Review, Vol. 101, pp. 129-157.

Pope, Devin G. and Justin R. Sydnor, 2011, "What's in a Picture? Evidence of Discrimination from Prosper.com," Journal of Human Resources, Vol. 46, No. 1, pp. 53-92.

Price, Joseph and Justin Wolfers, 2010, "Racial Discrimination among NBA Referees," Quarterly Journal of Economics, Vol. 125, No. 4, pp. 1859-1887.

Romer, David, 1984, "The Theory of Social Custom: A Modification and Some Extensions," Quarterly Journal of Economics, Vol. 99, No. 4, pp. 717-727.

Ross, Stephen L. and John Yinger, 2002, The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement, Cambridge, MA: MIT Press.

Sailes, G., 1996, "An Investigation of Campus Stereotypes: The Myth of the Black Athletic Superiority and the Dumb Jock Stereotype," in R. E. Lapchick, ed. Sport in Society: Equal Opportunity or Business as Usual? Thousand Oaks, CA: Sage Publishers, pp. 193-202.

Sauer, Raymond D., 1998, "The Economics of Wagering Markets," Journal of Economic Literature, Vol. 36, No. 4, pp. 2021-2064.

Snowberg, Erik and Justin Wolfers, 2010, "Explaining the Favorite-Longshot Bias: Is it Risk-Love or Misperceptions?," Journal of Political Economy, Vol. 118, No. 4, pp. 723-746.

Stone, Jeff, Zachary W. Perry and John M. Darley, 1997, "`White Men Can't Jump': Evidence for the Perceptual Confirmation of Racial Stereotypes Following a Basketball Game," Basic and Applied Social Psychology, Vol. 19, No. 3, pp. 291-306.

Stone, Jeff, Christian I. Lynch, Mike Sjomeling and John M. Darley, 1999, "Stereotype Threat Effects on Black and White Athletic Performance," Journal of Personality and Social Psychology, Vol. 77, No. 6, pp. 1213-1227.

Wolfers, Justin, 2006a, "Diagnosing Discrimination: Stock Returns and CEO Gender," Journal of the European Economic Association, Vol. 4, No. 2-3, pp. 531-541.

Wolfers, Justin, 2006b, "Point Shaving: Corruption in NCAA Basketball," American Economic Review, Vol. 96, No. 2, pp. 279-283.

Yinger, John, 1998, "Evidence on Discrimination in Consumer Markets," Journal of Economic Perspectives, Vol. 12, No. 2, pp. 23-40.