The House Doesn't Always Win: Evidence of Anchoring Among Australian Bookies
29 Pages Posted: 24 Jan 2010 Last revised: 20 Apr 2016
Date Written: March 1, 2011
We examine Australian horseracing bookmakers' responses to late scratches, instances in which a horse is abruptly withdrawn after betting has commenced. Our observed bookies exhibit anchoring on the original odds and fail to re-adjust odds fully on the remaining horses after a scratch, thereby earning lower profit margins and occasionally creating nominal arbitrage opportunities for bettors. We also examine which horses' odds bookies adjust after a scratch and demonstrate diminished profit margins even after controlling for these endogenous adjustments. Our results indicate that bookies' adjustments recover approximately 80% of lost profit margin but that bookies forgo the remaining 20% due to systematic under-adjustments.
Keywords: anchoring effect, behavioral economics, fixed odds wagering, natural experiment
JEL Classification: D03, D49, G12, L83
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