The House Doesn't Always Win: Evidence of Anchoring Among Australian Bookies

29 Pages Posted: 24 Jan 2010 Last revised: 20 Apr 2016

See all articles by Patrick McAlvanah

Patrick McAlvanah

Federal Trade Commission - Bureau of Economics

Charles C. Moul

Miami University of Ohio - Department of Economics

Date Written: March 1, 2011

Abstract

We examine Australian horseracing bookmakers' responses to late scratches, instances in which a horse is abruptly withdrawn after betting has commenced.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

Suggested Citation

McAlvanah, Patrick and Moul, Charles C., The House Doesn't Always Win: Evidence of Anchoring Among Australian Bookies (March 1, 2011). Available at SSRN: https://ssrn.com/abstract=1540614 or http://dx.doi.org/10.2139/ssrn.1540614

Patrick McAlvanah

Federal Trade Commission - Bureau of Economics ( email )

600 Pennsylvania Ave NW
Mail Drop HQ238
Washington, DC 20580
United States

Charles C. Moul (Contact Author)

Miami University of Ohio - Department of Economics ( email )

Farmer School of Business
Oxford, OH 45056
United States

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