Favorite-longshot bias in pari-mutuel betting: An evolutionary explanation

• Main Authors: KAJII, Atsushi, WATANABE, Takahiro
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2017
• Subjects: Favorite-longshot bias; Market selection; Competitive evolutionary market; Profit maximization; Risk loving; Economics; Economic Theory
• Online Access: https://ink.library.smu.edu.sg/soe_research/2082; https://ink.library.smu.edu.sg/context/soe_research/article/3082/viewcontent/1_s20_S0167268117301221_main.pdf
• Institution: Singapore Management University

Favorite-longshot bias (FLB) refers to an observed tendency whereby “longshots” are overvalued and favorites are undervalued. We offer an evolutionary explanation for FLB in pari-mutuel betting using a simple market model. A bettor is forced to quit with some probability if his total net gain in one...