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Do Bettors Prefer Long Shots because They Are Risk-Lovers, or Are They Just Overconfident?

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  • Golec, Joseph
  • Tamarkin, Maurry

Abstract

This study examines whether bettors' risk preferences or overconfidence in choosing winners better explains their well documented preference for low-probability wagers. Although previous studies using racetrack data often suggest that risk-loving behavior explains long-shot preference, such data cannot distinguish between the alternative explanations. We use football betting data to make the comparison and find that overconfidence more closely fits the data. This result complements evidence of overconfidence from behavioral studies as well as stock-market models of overconfident noise traders. Copyright 1995 by Kluwer Academic Publishers

Suggested Citation

  • Golec, Joseph & Tamarkin, Maurry, 1995. "Do Bettors Prefer Long Shots because They Are Risk-Lovers, or Are They Just Overconfident?," Journal of Risk and Uncertainty, Springer, vol. 11(1), pages 51-64, July.
    • Handle: RePEc:kap:jrisku:v:11:y:1995:i:1:p:51-64
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    Cited by:

    1. 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.
    2. Paul Ferraro, 2010. "Know Thyself: Competence and Self-awareness," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 38(2), pages 183-196, June.
    3. Paul Ferraro, 2005. "Know thyself: Incompetence and overconfidence," Framed Field Experiments 00148, The Field Experiments Website.
    4. Kai Fischer & Justus Haucap, 2020. "Betting Market Efficiency in the Presence of Unfamiliar Shocks: The Case of Ghost Games during the Covid-19 Pandemic," CESifo Working Paper Series 8526, CESifo.
    5. Shapira-Ettinger Keren & Shapira Ron A., 2008. "The Constructive Value of Overconfidence," Review of Law & Economics, De Gruyter, vol. 4(3), pages 751-778, December.
    6. Ruud H. Koning & Renske Zijm, 2023. "Betting market efficiency and prediction in binary choice models," Annals of Operations Research, Springer, vol. 325(1), pages 135-148, June.
    7. Alessandro Innocenti & Tommaso Nannicini & Roberto Ricciuti, 2021. "The Importance of Betting Early," Risks, MDPI, vol. 9(4), pages 1-15, April.
    8. Hwang, Joon Ho & Kim, Min-Su, 2015. "Misunderstanding of the binomial distribution, market inefficiency, and learning behavior: Evidence from an exotic sports betting market," European Journal of Operational Research, Elsevier, vol. 243(1), pages 333-344.
    9. Alistair Bruce & David Marginson, 2014. "Power, Not Fear: A Collusion-Based Account of Betting Market Inefficiency," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 21(1), pages 77-97, February.
    10. Kai Fischer & Justus Haucap, 2022. "Home advantage in professional soccer and betting market efficiency: The role of spectator crowds," Kyklos, Wiley Blackwell, vol. 75(2), pages 294-316, May.
    11. Koellinger, Ph.D. & Treffers, T., 2012. "Joy leads to Overconfidence, and a Simple Remedy," ERIM Report Series Research in Management ERS-2012-001-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    12. Philipp Koellinger & Theresa Treffers, 2015. "Joy Leads to Overconfidence, and a Simple Countermeasure," PLOS ONE, Public Library of Science, vol. 10(12), pages 1-22, December.
    13. Lea-Rachel Kosnik, 2008. "Refusing to budge: a confirmatory bias in decision making?," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 7(2), pages 193-214, November.

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