Do Bettors Correctly Perceive Odds? Three Studies of How Bettors Interpret Betting Odds as Probabilistic Information

This paper reports on three studies investigating how accurately bettors (=people who regularly bet on sports events) interpret the probabilistic information implied by betting odds. All studies were based on data collected by web surveys prompting a total of 186 experienced bettors to convert sets of representative odds into frequency judgments. Bayesian statistical methods were used to analyze the data. From the results, the following conclusions were made: (i) On the whole, the bettors produced well‐calibrated judgments, indicating that they have realistic perceptions of odds. (ii) Bettors were unable to consciously adjust judgments for different margins. (iii) Although their interval judgments often covered the estimates implied by the odds, the bettors tended to overestimate the variation of expected profitable bets between months. The results are consistent with prior research showing that people tend to make accurate probability judgments when faced with tasks characterized by constant and clear feedback. Copyright © 2015 John Wiley & Sons, Ltd.     

Investigating the roots of the favourite–longshot bias: an analysis of decision making by supply‐ and demand‐side agents in parallel betting markets

This paper offers new insights into the behavioural origins of the ‘favourite–longshot’ bias — an established feature of betting markets, whereby longshots win less often than the subjective probabilities imply and favourites more often. A number of alternative explanations has been offered for this phenomenon but the main debate focuses on whether it is caused by the behaviour of those supplying betting markets (bookmakers) or of the demand‐side agents in these markets (bettors) . This study analyses a new data source which offers detailed information for a large sample of recent UK horseraces on decision‐making behaviour within the parimutuel and the parallel bookmaker‐based betting markets. The results offer strong evidence for the existence of the ‘favourite–longshot’ bias in bookmaker‐based markets, with a corresponding absence of such an effect in the parimutuel case. These results offer support for the view that the origins of the ‘favourite–longshot’ bias lie principally in the decisions of bookmakers rather than in the decisions of bettors. Copyright © 2000 John Wiley & Sons, Ltd.     

Freedom,foreknowledge, and betting

Certain kinds of prediction, foreknowledge, and future-oriented action appear to require settled future truths. But open futurists think that the future is metaphysically unsettled: if it is open whether p is true, then it cannot currently be settled that p is true. So, open futurists—and libertarians who adopt the position—face the objection that their view makes rational action and deliberation impossible. I defuse the epistemic concern: open futurism does not entail obviously counterintuitive epistemic consequences or prevent rational action.     

Risk strategy under task complexity: a multivariate analysis of behaviour in a naturalistic setting

This study complements the existing literature on decision-making processes and outcomes in complex settings by exploring the impact of different types of complexity on risk strategies in a naturalistic setting. The study analyses a large sample of decisions made by individuals in UK offcourse betting markets, a fertile environment for observing both a variety of risk strategies and a range of task complexities. Specifically, the investigation focuses on the comparative impacts of complexity defined in terms, respectively, of alternatives and attributes. The results suggest that the risk strategy employed is affected by task complexity. Complexity does not affect the size of risk accepted but alternative- and attribute-based complexity together influence the propensity to accept greater degrees of risk. In addition, the effect of attribute-based complexity on risk taking appears to be modified by the use of risk-hedging strategies. The results are observed to corroborate some earlier work on decision process and outcome; where differences with earlier findings are identified, some possible explanations are offered. © 1998 John Wiley & Sons, Ltd.     

Carry on winning: The gamblers’ fallacy creates hot hand effects in online gambling

People suffering from the hot-hand fallacy unreasonably expect winning streaks to continue whereas those suffering from the gamblers’ fallacy unreasonably expect losing streaks to reverse. We took 565,915 sports bets made by 776 online gamblers in 2010 and analyzed all winning and losing streaks up to a maximum length of six. People who won were more likely to win again (apparently because they chose safer odds than before) whereas those who lost were more likely to lose again (apparently because they chose riskier odds than before). However, selection of safer odds after winning and riskier ones after losing indicates that online sports gamblers expected their luck to reverse: they suffered from the gamblers’ fallacy. By believing in the gamblers’ fallacy, they created their own hot hands.     

Endowment effect despite the odds

Can ownership status influence probability judgements under condition of uncertainty? In three experiments, we presented our participants with a recording of a real horse race. We endowed half of our sample with a wager on a single horse to win the race, and the other half with money to spend to acquire the same wager. Across three large studies (N = 750), we found the endowment effect – owners demanded significantly more for the wager than buyers were willing to pay to acquire it. However, we also found that probability estimates of each horse winning the race did not differ between owners and non-owners of the betting slip. Our results demonstrate that distorted perception of probability is unlikely to be a mechanism explaining the endowment effect.     

Regression to the mean and football wagers

Football performances are an imperfect measure of abilities, and consequently exaggerate differences in abilities. The skills of those football teams that perform the best and the worst are not really that far from average; thus their future performances regress to the mean. Betting data indicate that gamblers do not fully account for this regression. Copyright © 2002 John Wiley & Sons, Ltd.     

Complexity as a guide to understanding decision bias: A contribution to the favorite‐longshot bias debate

This paper investigates the origins of a widespread decision bias in betting markets, the favorite‐longshot bias (FLB); in particular, whether it is caused by cognitive errors on the part of bettors or by the pricing policies of bookmakers. The methodology is based on previous literature, which has suggested that: (i) races, as decision tasks for bettors, can be distinguished by their degree of complexity and their attractiveness to those with access to privileged information (insiders), (ii) cognitive errors increase as complexity increases, and (iii) bookmakers set odds in a manner to protect themselves from insiders. The degree of FLB was examined in races of varying complexity and attractiveness to insiders using a dataset of 8545 races drawn from the parallel bookmaker and pari‐mutuel markets operating in the UK in 2004. The results, interpreted in the light of the cognitive error and complexity literature, suggest that neither bettors' nor bookmakers' cognitive errors are the main cause of the bias. Rather, bettors' preferences for risk and the deliberate pricing policies of bookmakers play key roles in influencing the bias in markets where bookmakers and pari‐mutuel operators coexist. Copyright © 2008 John Wiley & Sons, Ltd.     

Representativeness in the Market for Bets on National Football League Games

In laboratory experiments the representativeness heuristic has been shown to affect participants' judgments. Finding representativeness in a real-world economic market would indicate that even decision makers who are highly experienced and motivated use the heuristic, and would, in addition, violate the efficient market hypotheses, i.e. the theory that market prices fully reflect all available information. Testing for representativeness in the market for bets on National Football Leagues games avoids complications that make tests of representativeness in a stock market difficult to interpret. Evidence for representativeness in the NFL betting market is found in a data set from an earlier study which failed to test for representativeness, and in the 1976– 9 market. Representativeness does not appear to exist in the contemporary market, however, perhaps because with the advent of the personal computer the market depends less on purely human judgment.