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What drives biased odds in sports betting markets: Bettors’ irrationality and the role of bookmakers

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  • Goto, Shingo
  • Yamada, Toru

Abstract

In sports betting markets, bookmakers may take speculative exposures to the game outcomes when they can assess the probabilities better than others. We propose a simple model of fixed-odds betting markets in which bookmakers tilt their odds to maximize their own speculative profits. They do so by accommodating bettors’ irrationality, thereby reinforcing systematic biases in betting markets. In European football betting markets, the Favorite-Longshot Bias and the Hot-Hand Bias persist despite the increased competition. This is difficult to explain only by bettors’ irrationality but consistent with the predicted odds-setting behavior of bookmakers. We discuss the implications for financial market anomalies.

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  • Goto, Shingo & Yamada, Toru, 2023. "What drives biased odds in sports betting markets: Bettors’ irrationality and the role of bookmakers," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 252-270.
    • Handle: RePEc:eee:reveco:v:86:y:2023:i:c:p:252-270
    DOI: 10.1016/j.iref.2023.03.002
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    More about this item

    Keywords

    Longshot; Hot-Hand; Prospect theory; Efficiency; Betting;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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