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.     

Are Longshots Only for Losers? A New Look at the Last Race Effect

There is evidence that betting on longshots increases in the last race of a day of horse racing. Previous accounts have assumed that the phenomenon is driven by bettors who have lost money and are trying to recoup their losses. To test this assumption of “reference dependence,” three laboratory experiments simulated a day at the races: In each of several rounds, participants chose either (i) a gamble with a small probability of a large gain and a large probability of a small loss (the “longshot”) or (ii) a gamble with a moderate chance of a small gain or a small loss (the “favorite”). The first two experiments employed a game played for points, while a third experiment included monetary incentives and stimuli drawn from a real day of racing. These experiments provide a clear demonstration of the last race effect in a laboratory setting. However, the results indicate that the effect is largely reference independent: Participants were more likely to choose the longshot in the last round regardless of whether, and how much, they had won or lost in previous rounds. Winning or losing, bettors prefer to “go out with a bang” at the end of a series of gambles. Copyright © 2015 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.