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Computing the Probability of Winning a Competition with an Application to Horse Races

Author

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  • Rodriguez Alvaro

    (Rutgers University, Newark)

Abstract

We use the theoretical framework of "tournament theory" to obtain a statistical foundation for the most popular contest function used in the economics literature. We show that once one solves the issue of measuring "output" as it appears in tournament theory, one can obtain maximum likelihood estimates of the parameters in the contest function based on the past performance of the competitors. The findings are used to predict the odds of winning a horse race and the results compared with the odds generated by the actual wagers.

Suggested Citation

  • Rodriguez Alvaro, 2011. "Computing the Probability of Winning a Competition with an Application to Horse Races," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 7(3), pages 1-11, July.
    • Handle: RePEc:bpj:jqsprt:v:7:y:2011:i:3:n:3
    DOI: 10.2202/1559-0410.1310
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    References listed on IDEAS

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Bernd Frick, 2003. "Contest Theory and Sport," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(4), pages 512-529, Winter.
    3. Stefan Szymanski, 2010. "The Economic Design of Sporting Contests," Palgrave Macmillan Books, in: The Comparative Economics of Sport, chapter 1, pages 1-78, Palgrave Macmillan.
    4. John Gandar & Richard Zuber & R. Stafford Johnson, 2001. "Searching for the favourite-longshot bias down under: an examination of the New Zealand pari-mutuel betting market," Applied Economics, Taylor & Francis Journals, vol. 33(13), pages 1621-1629.
    5. Ben-Naim Eli & Vazquez Federico & Redner Sidney, 2006. "Parity and Predictability of Competitions," Journal of Quantitative Analysis in Sports, De Gruyter, vol. 2(4), pages 1-14, October.
    6. Thaler, Richard H & Ziemba, William T, 1988. "Parimutuel Betting Markets: Racetracks and Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 2(2), pages 161-174, Spring.
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