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How Accurately Do Bettors Bet in Doubles ?
... While we focus on win bets here, more complex bets have also been studied elsewhere, e.g. Lo and Busche (1994). ...
Racing data provides a rich source of analysis for quantitative researchers to study multi-entry competitions. This paper first explores statistical modeling to investigate the favorite-longshot betting bias using world-wide horse race data. The result shows that the bias phenomenon is not universal. Economic interpretation using utility theory will also be provided. Additionally, previous literature have proposed various probability distributions to model racing running time in order to estimate higher order probabilities such as probabilities of finishing second and third. We extend the normal distribution assumption to include certain correlation and variance structure and apply the extended model to actual data. While horse race data is used in this paper, the methodologies can be applied to other types of racing data such as cars and dogs.
This is a survey of efficiency in racing, sports, and lottery markets. The win market is efficient but exhibits a favorite-longshot bias. The place and show markets, which involve more possible finishes, allow inefficiencies by using the win probabilities. These biases are discussed for U.S. and Hong Kong markets. The Kelly capital growth criterion is useful to implement a model to exploit these inefficiencies. Exotic markets involve even more complex sets of bets. Finally, possible inefficiencies in cross-track betting are discussed. Football and basketball betting markets are largely efficient. Lotteries provide interesting markets with one way to potentially exploit them being the use of unpopular numbers.
This chapter reviews the literature addressing the degree to which abnormal returns can be earned in horse race betting markets using publicly available information, other than odds alone. Consequently, the chapter examines the extent to which horse race betting markets are semi-strong form efficient. The conclusion to emerge is that horse race betting markets incorporate a significant amount of publicly available information. Bettors appear good at discounting simple, single variable information. However, they do not efficiently discount more complex information. Studies that examine the simultaneous effect of several variables on race outcome demonstrate that bettors often do not react to the subtle relationships that exist between variables.
Sports and betting markets have received little attention relative to financial markets, they are well suited for testing market efficiency and bettor rationality. This chapter discussesresearch on horseracing, sports betting on football and basketball, and lotteries besides numerous studies of efficiency in these markets. Several profitable systems are also described. The continued success of these winning systems tends to be related to some complicating factor in its development or execution. For instance, the system may involve short odds and complex probability estimation, it may rely on syndicates of bettors, it could require extremely long time horizons, or extensive data collection and statistical work. The winning systems described are subset of the winning systems used in practice. The incentives to disclose details of a winning system may not be sufficient in some cases given that such an action typically reduces the system's profitability as others employ it. The optimal betting strategies for exploiting inefficiencies when present are described in the chapter.
Many empirical studies have found the existence of a bias where the general public overestimates low probability events. This phenomenon has been termed the favourite-longshot bias and has been much studied in betting markets. This article looks at efficiency in multihorse 'exotic' wagers using 11 194 races run at 35 U.S. racetracks. We find the standard favourite-longshot in exacta wagers (involves picking the first two finishers in order). Results are unclear for trifecta wagers (picking the first three finishers in order).
The concept of information efficiency is central to many studies of financial markets, and these studies have been well surveyed to date. A betting market is an example of a simple financial market, but one which offers researchers the added advantage that it is characterized by a well-defined termination point at which each asset (or bet) possesses a definite value. In consequence, it is much more convenient to use this particular context to formulate tests of information efficiency, and from these tests to draw useful conclusions. This paper surveys the rapidly growing literature which has to date addressed this issue of information efficiency in betting markets. Copyright 1999 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research
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