Surprised by the Parimutuel Odds?
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Surprised by the Parimutuel Odds? / Ottaviani, Marco; Sørensen, Peter Norman.
In: American Economic Review (Print Edition), Vol. 99, No. 5, 12.2009, p. 2129-2134.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Surprised by the Parimutuel Odds?
AU - Ottaviani, Marco
AU - Sørensen, Peter Norman
N1 - JEL classification: D81, D82, L83
PY - 2009/12
Y1 - 2009/12
N2 - Empirical analyses of parimutuel betting markets have documented that market probabilities of favorites (longshots) tend to underestimate (overestimate) the corresponding empirical probabilities. We argue that this favorite-longshot bias is consistent with bettors taking simultaneous positions on the basis of private information about the likelihood of different outcomes. The ex post realization of a high market probability indicates favorable information about the occurrence of an outcome -- and the opposite is true for longshots. This explanation for the bias relies on the bettors' inability to incorporate the surprise revealed by the final odds.
AB - Empirical analyses of parimutuel betting markets have documented that market probabilities of favorites (longshots) tend to underestimate (overestimate) the corresponding empirical probabilities. We argue that this favorite-longshot bias is consistent with bettors taking simultaneous positions on the basis of private information about the likelihood of different outcomes. The ex post realization of a high market probability indicates favorable information about the occurrence of an outcome -- and the opposite is true for longshots. This explanation for the bias relies on the bettors' inability to incorporate the surprise revealed by the final odds.
U2 - 10.1257/aer.99.5.2129
DO - 10.1257/aer.99.5.2129
M3 - Journal article
VL - 99
SP - 2129
EP - 2134
JO - American Economic Review
JF - American Economic Review
SN - 0002-8282
IS - 5
ER -
ID: 17083580