Do Expectations Reflect Information Reliability? Evidence From Odds of Tennis Matches

79 Pages Posted: 6 Apr 2016 Last revised: 11 May 2019

See all articles by Constantinos Antoniou

Constantinos Antoniou

University of Warwick - Warwick Business School

Christos P. Mavis

University of Surrey - Surrey Business School

Date Written: May 9, 2019

Abstract

We examine whether people form expectations by placing a larger weight on more reliable signals. To test this notion, we analyze the subjective probabilities inferred from the odds offered by professional bookmakers on the outcomes of men's tennis matches, exploiting the exogenous variation in information reliability related to whether a tennis match is played in a long or short format. The premise of our tests is that higher-skilled players, who are more likely to win any single set, will win more often in longer matches, where more sets are played. This notion, which is confirmed by the data, suggests that skill-related signals are relatively more reliable in longer matches and should thus affect the odds in those matches more strongly. However, we find that the likelihood of higher-skilled players winning in longer matches is systematically underestimated, which is costly to bookmakers. This result is robust to inferring expectations from the odds achieved through a person-to-person betting exchange. Various robustness tests, including a laboratory experiment and a placebo test using women’s tennis data, where all matches are played in the same length format, support our conclusions. Overall, our analysis suggests that information reliability neglect influences expectations in real-world markets.

Keywords: Bayes Rule, Decision Heuristics, Information Reliability, Underreaction

JEL Classification: D8, G1

Suggested Citation

Antoniou, Constantinos and Mavis, Christos P., Do Expectations Reflect Information Reliability? Evidence From Odds of Tennis Matches (May 9, 2019). Available at SSRN: https://ssrn.com/abstract=2757037 or http://dx.doi.org/10.2139/ssrn.2757037

Constantinos Antoniou (Contact Author)

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Christos P. Mavis

University of Surrey - Surrey Business School ( email )

Guildford, Surrey GU2 7XH
United Kingdom

HOME PAGE: http://www.surrey.ac.uk/people/christos-p-mavis

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