IDEAS home Printed from https://ideas.repec.org/a/buc/jpredm/v4y2010i1p59-77.html
   My bibliography  Save this article

Evidence on the Favorite-Longshot Bias as a Supply-Side Phenomenon

Author

Listed:
  • Matti Metsola

Abstract

The favorite-longshot bias has been referred to as the most longstanding empirical regularity in literature concerning decision-making under uncertainty, as well as a central theme of the literature on betting. However, it has defied authoritative explanation to date. Several attempts have been offered to explain the bias. They can be divided to two main categories: demand-oriented and supply-oriented explanations. This article argues in favour of supply-side explanations. The study is based on comparison of bookmaker odds to betting exchange odds in three betting markets. The data obtained illustrate that the disparity between bookmaker odds and betting exchange prices increases rapidly as the implied probability of the event decreases. This provides an explanation of the favorite-longshot bias which is consistent with earlier empirical research, showing declining expected returns on bets as odds increase. In addition, this explanation is consistent with the evidence concerning the volume of bets actually received by bookmakers.

Suggested Citation

  • Matti Metsola, 2010. "Evidence on the Favorite-Longshot Bias as a Supply-Side Phenomenon," Journal of Prediction Markets, University of Buckingham Press, vol. 4(1), pages 59-77, May.
    • Handle: RePEc:buc:jpredm:v:4:y:2010:i:1:p:59-77
    as

    Download full text from publisher

    File URL: http://www.ingentaconnect.com/content/ubpl/jpm/2010/00000004/00000001/art00005
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rodney Paul & Andrew P. Weinbach & Kenneth Small, 2014. "The Relationship between Sportsbook Volume, Forecast Accuracy, and Market Efficiency: The NFL and NCAA Football," Journal of Prediction Markets, University of Buckingham Press, vol. 8(2), pages 29-42.
    2. Jinook Jeong & Jee Young Kim & Yoon Jae Ro, 2019. "On the efficiency of racetrack betting market: a new test for the favourite-longshot bias," Applied Economics, Taylor & Francis Journals, vol. 51(54), pages 5817-5828, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:buc:jpredm:v:4:y:2010:i:1:p:59-77. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dominic Cortis, University of Malta (email available below). General contact details of provider: http://www.ubpl.co.uk/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.