Videnskabeligt Personale – Københavns Universitet

Økonomisk Institut > Ansatte > Videnskabeligt Personale

Surprised by the Parimutuel Odds?

Publikation: Bidrag til tidsskriftTidsskriftartikel

Marco Ottaviani, Peter Norman Sørensen

Empirical analyses of parimutuel betting markets have documented that market probabilities of favorites (longshots) tend to underestimate (overestimate) the corresponding empirical probabilities. We argue that this favorite-longshot bias is consistent with bettors taking simultaneous positions on the basis of private information about the likelihood of different outcomes. The ex post realization of a high market probability indicates favorable information about the occurrence of an outcome -- and the opposite is true for longshots. This explanation for the bias relies on the bettors' inability to incorporate the surprise revealed by the final odds.
OriginalsprogEngelsk
TidsskriftAmerican Economic Review (Print Edition)
Vol/bind99
Tidsskriftsnummer5
Sider (fra-til)2129-2134
Antal sider6
ISSN0002-8282
DOI
StatusUdgivet - dec. 2009

Bibliografisk note

JEL classification: D81, D82, L83

ID: 17083580