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

Research output: Contribution to journalJournal articlepeer-review

Documents

  • mic.2.1.58

    Final published version, 576 KB, PDF document

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.
Original languageEnglish
JournalAmerican Economic Journal. Microeconomics
Volume2
Issue number1
Pages (from-to)58-85
Number of pages18
ISSN1945-7669
DOIs
Publication statusPublished - 2010

Number of downloads are based on statistics from Google Scholar and www.ku.dk


No data available

ID: 19394249