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Why are some favourite-longshot biases positive and others negative?

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  • Leighton Vaughan Williams
  • David Paton

Abstract

Most studies of both pari-mutuel and fixed-odds betting markets have shown a systematic tendency for the expected return to bets at lower odds to exceed those at higher odds. Some work, however, has revealed in certain markets the absence or even reversal of this bias. We present a model which distinguishes two separate types of bettor, and use this to demonstrate how transactions costs, the extent of public information, and consumption benefits of betting can explain the disparities. Our empirical evidence, taken from a fixed-odds market, lends support to our theoretical conclusions.

Suggested Citation

  • Leighton Vaughan Williams & David Paton, 1998. "Why are some favourite-longshot biases positive and others negative?," Applied Economics, Taylor & Francis Journals, vol. 30(11), pages 1505-1510.
    • Handle: RePEc:taf:applec:v:30:y:1998:i:11:p:1505-1510
    DOI: 10.1080/000368498324841
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    References listed on IDEAS

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