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An Examination of the Determinants of Biased Behaviour in a Market for State Contingent Claims

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  • ALISTAIR C. BRUCE
  • JOHNNIE E. V. JOHNSON
  • JOHN D. PEIRSON
  • JIEJUN YU

Abstract

We develop a model to explain the differential incidence of the favourite–longshot bias in parallel sectors of the pari‐mutuel horserace betting market. Hypotheses are derived from the model and these are tested, using UK data, to explore the origins of the bias. Significant variations in the bias are discovered between market sectors on‐ and off‐racetrack. These results shed light on competing demand‐side explanations for the favourite–longshot bias and suggest that it is affected by a combination of behavioural and operational features of the markets and the types of bettors (informed and leisure) which they attract.

Suggested Citation

  • Alistair C. Bruce & Johnnie E. V. Johnson & John D. Peirson & Jiejun Yu, 2009. "An Examination of the Determinants of Biased Behaviour in a Market for State Contingent Claims," Economica, London School of Economics and Political Science, vol. 76(302), pages 282-303, April.
    • Handle: RePEc:bla:econom:v:76:y:2009:i:302:p:282-303
    DOI: 10.1111/j.1468-0335.2008.00741.x
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    References listed on IDEAS

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    4. Green, Lawrence & Sung, Ming-Chien & Ma, Tiejun & Johnson, Johnnie E. V., 2019. "To what extent can new web-based technology improve forecasts? Assessing the economic value of information derived from Virtual Globes and its rate of diffusion in a financial market," European Journal of Operational Research, Elsevier, vol. 278(1), pages 226-239.
    5. Braun, Sebastian & Kvasnicka, Michael, 2013. "National Sentiment and Economic Behavior: Evidence From Online Betting on European Football," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 14(1), pages 45-64.
    6. Jaiho Chung & Joon Ho Hwang, 2010. "An Empirical Examination of the Parimutuel Sports Lottery Market versus the Bookmaker Market," Southern Economic Journal, John Wiley & Sons, vol. 76(4), pages 884-905, April.
    7. Linda M. Woodland & Bill M. Woodland, 2011. "The Reverse Favorite-Longshot Bias in the National Hockey League: Do Bettors Still Score on Longshots?," Journal of Sports Economics, , vol. 12(1), pages 106-117, February.
    8. Sebastian Braun & Michael Kvasnicka, 2013. "National Sentiment and Economic Behavior," Journal of Sports Economics, , vol. 14(1), pages 45-64, February.

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