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Expert Analysis and Insider Information in Horse Race Betting: Regulating Informed Market Behaviour

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  • John Peirson

Abstract

We present a new model analyzing the effect of uncertainty faced by bookmakers. It is shown that bettors with inside information or expert analysis decrease the odds set by profit maximizing bookmakers. Data on previously unraced two year old horses and those that have raced previously are used to examine the impact of the greater possibility of insider information on odds bias in relation to unraced horses. The price of a bet on unraced two year olds is found to be on average 15% higher and the effect varies as the probability of winning increases. The latter effect suggests a possible contribution to the favorite-longshot bias and the former shows the importance of insider information in the setting of market prices. The regulation of the use of insider information is discussed in the light of the similar impact of insider information and expert analysis on bookmaker odds.

Suggested Citation

  • John Peirson, 2008. "Expert Analysis and Insider Information in Horse Race Betting: Regulating Informed Market Behaviour," Studies in Economics 0819, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:0819
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    Cited by:

    1. Smith, Michael A. & Vaughan Williams, Leighton, 2010. "Forecasting horse race outcomes: New evidence on odds bias in UK betting markets," International Journal of Forecasting, Elsevier, vol. 26(3), pages 543-550, July.

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    More about this item

    Keywords

    Betting; Horseracing; Insider Information; Uncertainty;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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