Noise, Information and the Favorite-Longshot Bias in Parimutuel Predictions

Marco Ottaviani; Peter Norman Sørensen

doi:10.1257/mic.2.1.58

Noise, Information and the Favorite-Longshot Bias in Parimutuel Predictions

Marco Ottaviani, Peter Norman Sørensen

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › peer review

35 Citationer (Scopus)

123 Downloads (Pure)

Abstract

Udgivelsesdato: February

Originalsprog	Engelsk
Tidsskrift	American Economic Journal. Microeconomics
Vol/bind	2
Udgave nummer	1
Sider (fra-til)	58-85
Antal sider	18
ISSN	1945-7669
DOI	https://doi.org/10.1257/mic.2.1.58
Status	Udgivet - 2010

Bibliografisk note

JEL classification: D81, D83

Adgang til dokumentet

10.1257/mic.2.1.58

mic.2.1.58Forlagets udgivne version, 576 KB

Citationsformater

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title = "Noise, Information and the Favorite-Longshot Bias in Parimutuel Predictions",

abstract = "According to the favorite-longshot bias, the expected return on an outcome tends to increase in the fraction of bets laid on that outcome. We derive testable implications for the direction and extent of the bias depending on the ratio of private information to noise present in the market. We link this ratio to observables such as the number of bettors, the number of outcomes, the amount of private information, the level of participation generated by recreational interest in the event, the divisibility of bets, the presence of ex post noise, as well as ex ante asymmetries across outcomes.",

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AU - Sørensen, Peter Norman

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N2 - According to the favorite-longshot bias, the expected return on an outcome tends to increase in the fraction of bets laid on that outcome. We derive testable implications for the direction and extent of the bias depending on the ratio of private information to noise present in the market. We link this ratio to observables such as the number of bettors, the number of outcomes, the amount of private information, the level of participation generated by recreational interest in the event, the divisibility of bets, the presence of ex post noise, as well as ex ante asymmetries across outcomes.

AB - According to the favorite-longshot bias, the expected return on an outcome tends to increase in the fraction of bets laid on that outcome. We derive testable implications for the direction and extent of the bias depending on the ratio of private information to noise present in the market. We link this ratio to observables such as the number of bettors, the number of outcomes, the amount of private information, the level of participation generated by recreational interest in the event, the divisibility of bets, the presence of ex post noise, as well as ex ante asymmetries across outcomes.

U2 - 10.1257/mic.2.1.58

DO - 10.1257/mic.2.1.58

M3 - Journal article

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JO - American Economic Journal. Microeconomics

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