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Imperfect Market-Maker Competition, Heterogeneous Expectations, and The Favourite-Longshot Bias in Wagering Markets

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  • William Hurley
  • Lawrence McDonough

Abstract

In the study of wagering markets, it is generally the case that the objective probabilities of various contestants (horses, teams, etc.) winning do not match those implied by the betting. More often than not favourites are underbet and longshots overbet, although some studies have found the reverse. We offer an explanation in the case where there is imperfect competition among book-makers and heterogeneous expectations among bettors.

Suggested Citation

  • William Hurley & Lawrence McDonough, 2007. "Imperfect Market-Maker Competition, Heterogeneous Expectations, and The Favourite-Longshot Bias in Wagering Markets," Journal of Gambling Business and Economics, University of Buckingham Press, vol. 1(1), pages 3-12, February.
    • Handle: RePEc:buc:jgbeco:v:1:y:2007:i:1:p:3-12
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    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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