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Pricing Exotic Racetrack Wagers

In: Efficiency Of Racetrack Betting Markets

Author

Listed:
  • Donald B. Hausch

    (School of Business, University of Wisconsin, Madison, Wisconsin 53706, USA)

  • Victor S. Y. Lo

    (Management Science Division, Faculty of Commerce, University of British Columbia, Vancouver BC, Canada V6T 1Z2, Canada)

  • William T. Ziemba

    (Management Science Division, Faculty of Commerce, University of British Columbia, Vancouver BC, Canada V6T 1Z2, Canada)

Abstract

Numerous authors have found that the win market at racetracks is essentially weak-form efficient. The relative amounts wagered at various odds levels provides a fairly accurate estimate of the true chances of winning. However, the accuracy of this estimate can be improved by adjusting for the favorite-longshot bias. This is the tendency for bettors to significantly overvalue low probability high payoff wagers on longshots and significantly undervalue high probability low payoff favorites. The resulting pricing equation coupled with a probability model for running time distributions generates accurate probabilities of all possible finishes. This allows us to price exotic wagers such as the exactor, triactor, quinella and daily double, and to identify when such bets have a positive expected return.

Suggested Citation

  • Donald B. Hausch & Victor S. Y. Lo & William T. Ziemba, 2008. "Pricing Exotic Racetrack Wagers," World Scientific Book Chapters, in: Donald B Hausch & Victor SY Lo & William T Ziemba (ed.), Efficiency Of Racetrack Betting Markets, chapter 47, pages 469-483, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812819192_0047
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    Cited by:

    1. Lizhong Yang & Shaobo Liu & Ping Rao & Kongjin Zhu, 2012. "Subconscious Environmental Information Perceiving Behavior And Its Attenuation In Information-Based Evacuation Experiment," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 23(07), pages 1-17.

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