1 School of Economics and Management, Faculty of Social Sciences, Aarhus University, Aarhus University2 Department of Economics and Business Economics, Aarhus BSS, Aarhus University3 Royal Holloway, University of London4 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
Is a (reverse) favourite-longshot bias built-in?
A widely documented empirical regularity in gambling markets is that bets on high probability events (a race won by a "favourite") have higher expected returns than bets on low probability events (a "longshot" wins). Such favourite-longshot (FL) biases however appear to be more severe and persistent in bookmaker markets than in pari-mutuel markets; the latter sometimes exhibit no bias or a reverse FL bias. Our results help understand these differences: the odds grid in bookmaker markets leads to a built-in FL bias, whereas that used in pari-mutuel betting pushes these markets toward a reverse FL bias.
Journal of Prediction Markets, 2008, Vol 2, Issue 2, p. 29-50