Bets and Bids

Favorite-Longshot Bias and Winner's Curse

Research output: Working paperDiscussion paperOther research output

349 Downloads (Pure)

Abstract

A well-documented anomaly in racetrack betting is that the expected return per dollar bet on a horse increases with the probability of the horse winning. This so-called favorite-longshot bias is at odds with the presumptions of market efficiency.We show that the bias is consistent with betters having myopic beliefs.If betters neglect the fact the popularity of a horse indicates that other people have favorable information about that horse, then they bet less on the favorite than they should.This myopia is related to, though stronger than, the judgmental bias that lead to the winner's curse in auctions.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages16
Volume1996-04
Publication statusPublished - 1996

Publication series

NameCentER Discussion Paper
Volume1996-04

Fingerprint

Winner's curse
Bid
Betting
Auctions
Neglect
Anomaly
Market efficiency
Myopia
Expected returns

Keywords

  • gambling
  • Bidding

Cite this

Potters, J. J. M., & Wit, J. (1996). Bets and Bids: Favorite-Longshot Bias and Winner's Curse. (CentER Discussion Paper; Vol. 1996-04). Tilburg: Microeconomics.
Potters, J.J.M. ; Wit, J. / Bets and Bids : Favorite-Longshot Bias and Winner's Curse. Tilburg : Microeconomics, 1996. (CentER Discussion Paper).
@techreport{1a4df039bf9e4b6aab55b275558046c5,
title = "Bets and Bids: Favorite-Longshot Bias and Winner's Curse",
abstract = "A well-documented anomaly in racetrack betting is that the expected return per dollar bet on a horse increases with the probability of the horse winning. This so-called favorite-longshot bias is at odds with the presumptions of market efficiency.We show that the bias is consistent with betters having myopic beliefs.If betters neglect the fact the popularity of a horse indicates that other people have favorable information about that horse, then they bet less on the favorite than they should.This myopia is related to, though stronger than, the judgmental bias that lead to the winner's curse in auctions.",
keywords = "gambling, Bidding",
author = "J.J.M. Potters and J. Wit",
note = "Pagination: 16",
year = "1996",
language = "English",
volume = "1996-04",
series = "CentER Discussion Paper",
publisher = "Microeconomics",
type = "WorkingPaper",
institution = "Microeconomics",

}

Potters, JJM & Wit, J 1996 'Bets and Bids: Favorite-Longshot Bias and Winner's Curse' CentER Discussion Paper, vol. 1996-04, Microeconomics, Tilburg.

Bets and Bids : Favorite-Longshot Bias and Winner's Curse. / Potters, J.J.M.; Wit, J.

Tilburg : Microeconomics, 1996. (CentER Discussion Paper; Vol. 1996-04).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Bets and Bids

T2 - Favorite-Longshot Bias and Winner's Curse

AU - Potters, J.J.M.

AU - Wit, J.

N1 - Pagination: 16

PY - 1996

Y1 - 1996

N2 - A well-documented anomaly in racetrack betting is that the expected return per dollar bet on a horse increases with the probability of the horse winning. This so-called favorite-longshot bias is at odds with the presumptions of market efficiency.We show that the bias is consistent with betters having myopic beliefs.If betters neglect the fact the popularity of a horse indicates that other people have favorable information about that horse, then they bet less on the favorite than they should.This myopia is related to, though stronger than, the judgmental bias that lead to the winner's curse in auctions.

AB - A well-documented anomaly in racetrack betting is that the expected return per dollar bet on a horse increases with the probability of the horse winning. This so-called favorite-longshot bias is at odds with the presumptions of market efficiency.We show that the bias is consistent with betters having myopic beliefs.If betters neglect the fact the popularity of a horse indicates that other people have favorable information about that horse, then they bet less on the favorite than they should.This myopia is related to, though stronger than, the judgmental bias that lead to the winner's curse in auctions.

KW - gambling

KW - Bidding

M3 - Discussion paper

VL - 1996-04

T3 - CentER Discussion Paper

BT - Bets and Bids

PB - Microeconomics

CY - Tilburg

ER -

Potters JJM, Wit J. Bets and Bids: Favorite-Longshot Bias and Winner's Curse. Tilburg: Microeconomics. 1996. (CentER Discussion Paper).