Behavioral Biases in the NFL Gambling Market: Overreaction to News and the Recency Bias

Abstract

This paper examines the recency bias and overreaction in the NFL betting market from 2003 to 2017. Consistent with the recency bias, bettors are more likely to bet on teams who have won previous outcomes. We add to the literature and find that the magnitude of prior wins and losses in the previous weeks' plays a greater importance than the sole outcome of wins and losses in betting behavior. Additionally, our results show that bettors wager 2.1% less on the home team when their first-string quarterback does not play, and 3.1% more on the home team when the visitor's first-string quarterback does not play, which is consistent with overreaction. Finally, our results show that bookmakers earn "over the odds" thanks to bettors' quasi-rational behavior as they commit the recency bias.

Keywords: Overreaction, Recency Bias, Behavioral Bias, NFL, Gambling

JEL Classification: G1, G4, L83