Explaining the favorite-long shot bias: Is it risk-love or misperceptions?

Journal of Political Economy

Volumn 118, Issue 4, 2010, Pages 723-746

  Snowberg, Erik ^a   Wolfers, Justin ^b  

^a CALIFORNIA INSTITUTE OF TECHNOLOGY   (United States)

^b UNIVERSITY OF PENNSYLVANIA   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

GAME THEORY; NEOCLASSICAL THEORY; NUMERICAL MODEL; PROBABILITY; SAMPLING BIAS; THEORETICAL STUDY;

EQUIDAE; QUINELLA;

EID: 77958486270     PISSN: 00223808     EISSN: None     Source Type: Journal    
DOI: 10.1086/655844     Document Type: Article

References (36)

1. Aczél, J. 1966. Lectures on Functional Equations and Their Applications. New York: Academic Press.
2. Ali, Mukhtar M. 1977. "Probability and Utility Estimates for Racetrack Bettors." J.P.E. 85 (August): 803-15.
3. - 1979. "Some Evidence of the Efficiency of a Speculative Market." Econometrica 47 (March): 387-92.
4. Asch, Peter, Burton G. Malkiel, and Richard E. Quandt. 1982. "Racetrack Betting and Informed Behavior." J. Financial Econ. 10 (July): 187-94.
5. Asch, Peter, and Richard E. Quandt. 1987. "Efficiency and Profitability in Exotic Bets." Economica 54 (August): 289-98.
6. Busche, Kelly. 1994. "Efficient Market Results in an Asian Setting." In Efficiency of Racetrack Betting Markets, edited by Donald Hausch, V. Lo, and William T. Ziemba, 615-16. New York: Academic Press.
7. Busche, Kelly, and Christopher D. Hall. 1988. "An Exception to the Risk Preference Anomaly." J. Bus. 61 (July): 337-46.
8. Camerer, Colin F., and Teck Hua Ho. 1994. "Violations of the Betweenness Axiom and Nonlinearity in Probability." J. Risk and Uncertainty 8 (March): 167-96.
9. Cleveland, William S., Susan J. Devlin, and Eric Grosse. 1988. "Regression by Local Fitting: Methods, Properties, and Computational Algorithms." J. Econometrics 37 (September): 87-114.
10. Conlisk, John. 1993. "The Utility of Gambling." J. Risk and Uncertainty 6 (June): 255-75.
11. Dolbear, F. Trenery. 1993. "Is Racetrack Betting on Exactas Efficient?" Economica 60 (February): 105-11.
12. Friedman, Milton, and Leonard J. Savage. 1948. "The Utility Analysis of Choices Involving Risk." J.P.E. 56 (August): 279-304.
13. Gabriel, Paul E., and James R. Marsden. 1990. "An Examination of Market Efficiency in British Racetrack Betting." J.P.E. 98 (August): 874-85.
14. Gandhi, Amit. 2007. "Rational Expectations at the Racetrack: Testing Expected Utility Using Prediction Market Prices." Manuscript, Univ. Wisconsin- Madison. Golec, Joseph, and Maurry Tamarkin. 1998. "Bettors Love Skewness, Not Risk, at the Horse Track." J.P.E. 106 (February): 205-25.
15. Griffith, R. M. 1949. "Odds Adjustments by American Horse-Race Bettors." American J. Psychology 62 (August): 290-94.
16. Harville, David A. 1973. "Assigning Probabilities to the Outcomes of Multi-entry Competitions." J. American Statis. Assoc. 68 (June): 312-16.
17. Henery, Robert J. 1985. "On the Average Probability of Losing Bets on Horses with Given Starting Price Odds." J. Royal Statis. Soc., ser. A, 148 (November): 342-49.
18. Hurley, William, and Lawrence McDonough. 1995. "A Note on the Hayek Hypothesis and the Favorite-Longshot Bias in Parimutuel Betting." A.E.R. 85 (September): 949-55.
19. Jullien, Bruno, and Bernard Salanié. 2000. "Estimating Preferences under Risk: The Case of Racetrack Bettors." J.P.E. 108 (June): 503-30.
20. Kahneman, Daniel, and Amos Tversky. 1979. "Prospect Theory: An Analysis of Decision under Risk." Econometrica 47 (March): 263-92.
21. Levitt, Steven D. 2004. "Why Are Gambling Markets Organised So Differently from Financial Markets?" Econ. J. 114 (April): 223-46.
22. Manski, Charles F. 2006. "Interpreting the Predictions of Prediction Markets." Econ. Letters 91 (June): 425-29.
23. McGlothlin, William H. 1956. "Stability of Choices among Uncertain Alternatives." American J. Psychology 69 (December): 604-15.
24. Ottaviani, Marco, and Peter Norman Sørenson. 2010. "Noise, Information, and the Favorite-Longshot Bias in Parimutuel Predictions." American Econ. J.: Microeconomics 2 (February): 58-85.
25. Prelec, Drazen. 1998. "The Probability Weighting Function." Econometrica 66 (May): 497-527.
26. Quandt, Richard E. 1986. "Betting and Equilibrium." Q.J.E. 101 (February): 201-8.
27. Rosett, Richard N. 1965. "Gambling and Rationality." J.P.E. 73 (December): 595-607.
28. Samuelson, Paul A. 1952. "Probability, Utility, and the Independence Axiom." Econometrica 20 (October): 670-78.
29. Sauer, Raymond D. 1998. "The Economics of Wagering Markets." J. Econ. Literature 36 (December): 2021-64.
30. Segal, Uzi. 1990. "Two-Stage Lotteries without the Reduction Axiom." Econometrica 58 (March): 349-77.
31. Shin, Hyun Song. 1992. "Prices of State Contingent Claims with Insider Traders, and the Favourite-Longshot Bias." Econ. J. 102 (March): 426-35.
32. Snowberg, Erik, and Justin Wolfers. 2007. "Examining Explanations ofa Market Anomaly: Preferences or Perceptions?" In Efficiency of Sports and Lottery Markets, edited by Donald Hausch and William Ziemba, 103-37. Handbooks in Finance. Amsterdam: Elsevier.
33. - 2010. "Explaining the Favorite-Longshot Bias: Is It Risk-Love or Misperceptions?" Working Paper no. 15923, NBER, Cambridge, MA.
34. Thaler, Richard H., and William T. Ziemba. 1988. "Anomalies: Parimutuel Betting Markets: Racetracks and Lotteries." J. Econ. Perspectives 2 (Spring): 161-74.
35. Weitzman, Martin. 1965. "Utility Analysis and Group Behavior: An Empirical Study." J.P.E. 73 (February): 18-26.
36. Williams, Leighton Vaughn, and David Paton. 1997. "Why Is There a Favourite-Longshot Bias in British Racetrack Betting Markets?" Econ. J. 107 (January): 150-58.