Towards an Understanding of the Origins of the Favourite–Longshot Bias: Evidence from Online Poker Markets, a Real‐Money Natural Laboratory

23 Pages Posted: 5 Mar 2018

See all articles by Leighton Vaughan Williams

Leighton Vaughan Williams

Nottingham (Trent) Business School

Ming‐Chien Sung

University of Southampton

Peter A. F. Fraser‐Mackenzie

University of Southampton

John Peirson

University of Kent, Canterbury, School of Economics

Johnnie E. V. Johnson

University of Southampton

Date Written: April 2018

Abstract

Evidence of differential returns to bets placed with different probabilities of success has revealed a broadly systematic tendency for low/high‐probability events to be relatively overbet/underbet, a phenomenon known as the favourite–longshot bias. While most of the literature focuses on sports, especially horse racing, we report here the existence of the same phenomenon in online poker games. We find that misperception rather than risk‐love offers the best explanation for the behaviour that we identify. This paper contributes to the more general literature explaining betting behaviour as well as the prevalence of the favourite–longshot bias in betting markets.

Suggested Citation

Vaughan Williams, Leighton and Sung, Ming‐Chien and Fraser‐Mackenzie, Peter A. F. and Peirson, John and Johnson, Johnnie E. V., Towards an Understanding of the Origins of the Favourite–Longshot Bias: Evidence from Online Poker Markets, a Real‐Money Natural Laboratory (April 2018). Economica, Vol. 85, Issue 338, pp. 360-382, 2018. Available at SSRN: https://ssrn.com/abstract=3133417 or http://dx.doi.org/10.1111/ecca.12200

Leighton Vaughan Williams (Contact Author)

Nottingham (Trent) Business School ( email )

Burton Street
NG1 4BU Nottingham
United Kingdom

Ming‐Chien Sung

University of Southampton

Peter A. F. Fraser‐Mackenzie

University of Southampton

University Rd.
Southampton SO17 1BJ, SO17 1LP
United Kingdom

John Peirson

University of Kent, Canterbury, School of Economics ( email )

Keynes College
Kent, CT2 7NP
United Kingdom

Johnnie E. V. Johnson

University of Southampton

University Rd.
Southampton SO17 1BJ, SO17 1LP
United Kingdom

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