Noise, Information and the Favorite-Longshot Bias in Parimutuel Predictions
Research output: Contribution to journal › Journal article › Research › peer-review
Standard
Noise, Information and the Favorite-Longshot Bias in Parimutuel Predictions. / Ottaviani, Marco; Sørensen, Peter Norman.
In: American Economic Journal. Microeconomics, Vol. 2, No. 1, 2010, p. 58-85.Research output: Contribution to journal › Journal article › Research › peer-review
Harvard
APA
Vancouver
Author
Bibtex
}
RIS
TY - JOUR
T1 - Noise, Information and the Favorite-Longshot Bias in Parimutuel Predictions
AU - Ottaviani, Marco
AU - Sørensen, Peter Norman
N1 - JEL classification: D81, D83
PY - 2010
Y1 - 2010
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
VL - 2
SP - 58
EP - 85
JO - American Economic Journal: Microeconomics
JF - American Economic Journal: Microeconomics
SN - 1945-7669
IS - 1
ER -
ID: 19394249