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What Causes the Favorite-Longshot Bias? Further Evidence from Tennis

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  • Lahvicka, Jiri

Abstract

In sports betting markets, bets on favorites tend to have a higher expected value than bets on longshots. This article uses a data set of almost 45,000 professional single tennis matches to show that the favorite-longshot bias is much stronger in matches between lower-ranked players, in later-round matches, and in high-profile tournaments. These results cannot be solely explained by bettors being locally risk-loving or overestimating chances of longshots, but are consistent with bookmakers protecting themselves against both better informed insiders and the general public exploiting new information.

Suggested Citation

  • Lahvicka, Jiri, 2013. "What Causes the Favorite-Longshot Bias? Further Evidence from Tennis," MPRA Paper 47905, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:47905
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    File URL: https://mpra.ub.uni-muenchen.de/47905/1/MPRA_paper_47905.pdf
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    References listed on IDEAS

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    1. David Forrest & Ian Mchale, 2007. "Anyone for Tennis (Betting)?," The European Journal of Finance, Taylor & Francis Journals, vol. 13(8), pages 751-768.
    2. Raymond D. Sauer, 1998. "The Economics of Wagering Markets," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2021-2064, December.
    3. Vasiliki Makropoulou & Raphael N. Markellos, 2011. "Optimal Price Setting In Fixed‐Odds Betting Markets Under Information Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(4), pages 519-536, September.
    4. Erik Snowberg & Justin Wolfers, 2010. "Explaining the Favorite-Long Shot Bias: Is it Risk-Love or Misperceptions?," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 723-746, August.
    5. Michael Cain & David Law & David Peel, 2003. "The Favourite‐Longshot Bias, Bookmaker Margins and Insider Trading in a Variety of Betting Markets," Bulletin of Economic Research, Wiley Blackwell, vol. 55(3), pages 263-273, July.
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    Cited by:

    1. Isabel Abinzano & Luis Muga & Rafael Santamaria, 2017. "Behavioral Biases Never Walk Alone," Journal of Sports Economics, , vol. 18(2), pages 99-125, February.
    2. Vincenzo Candila & Antonio Scognamillo, 2019. "On the Longshot Bias in Tennis Betting Markets: The Casco Normalization," Working Papers 3_236, Dipartimento di Scienze Economiche e Statistiche, Università degli Studi di Salerno.
    3. Isabel Abinzano & Luis Muga & Rafael Santamaria, 2019. "Hidden Power of Trading Activity: The FLB in Tennis Betting Exchanges," Journal of Sports Economics, , vol. 20(2), pages 261-285, February.
    4. He, Xue-Zhong & Treich, Nicolas, 2017. "Prediction market prices under risk aversion and heterogeneous beliefs," Journal of Mathematical Economics, Elsevier, vol. 70(C), pages 105-114.
    5. Franke, Maximilian, 2020. "Do market participants misprice lottery-type assets? Evidence from the European soccer betting market," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 1-18.
    6. 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.
    7. Ramirez, Philip & Reade, J. James & Singleton, Carl, 2023. "Betting on a buzz: Mispricing and inefficiency in online sportsbooks," International Journal of Forecasting, Elsevier, vol. 39(3), pages 1413-1423.
    8. Brown, Alasdair & Yang, Fuyu, 2019. "The wisdom of large and small crowds: Evidence from repeated natural experiments in sports betting," International Journal of Forecasting, Elsevier, vol. 35(1), pages 288-296.

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    More about this item

    Keywords

    favorite-longshot bias; tennis; sports betting; market efficiency;
    All these keywords.

    JEL classification:

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

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