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Do horses like vodka and sponging? On market manipulation and the favourite-longshot bias


Winter, Stefan; Kukuk, Martin


Bitte beziehen Sie sich beim Zitieren dieses Dokumentes immer auf folgenden Persistent Identifier (PID):http://nbn-resolving.de/urn:nbn:de:0168-ssoar-242831

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Abstract One of the most striking empirical patterns of horse race betting markets is the favorite-longshot bias: Bets on favorites have dramatically higher expected returns than bets on longshots. The literature offers a couple of different, though not mutually exclusive, explanations based on risk preferences and probability perceptions. This article adds a new possible explanation: The favorite-longshot bias may be the rational answer of an honest audience to a simple, but highly lucrative cheating opportunity of insiders. We provide anecdotal evidence that the type of cheating we model here really takes place. What is more, by employing a large scale German data set we are able to demonstrate that the pattern of the favourite-longshot bias changes as the opportunity of cheating vanishes. The changes we observe are in accord with the cheating model we suggest.
Thesaurusschlagwörter gambling; estimation
Klassifikation Wirtschaftsstatistik, Ökonometrie, Wirtschaftsinformatik
Freie Schlagwörter Pferdesport; Bias
Sprache Dokument Englisch
Publikationsjahr 2008
Seitenangabe S. 75-87
Zeitschriftentitel Applied Economics, 40 (2008) 1
DOI http://dx.doi.org/10.1080/00036840701731538
Status Postprint; begutachtet (peer reviewed)
Lizenz PEER Licence Agreement (applicable only to documents from PEER project)