Risk Love and the Favorite-Longshot Bias: Evidence from German Harness Horse Racing

Schmalenbach Business Review, Vol. 58, October 2006

17 Pages Posted: 26 Oct 2006  

Stefan Winter

Ruhr Universität Bochum - Faculty of Economics

Martin Kukuk

University of Würzburg - Institute of Economics and Social Sciences

Abstract

Empirical studies of horse race betting in the U.S., the UK, and Australia have established the so called favorite-longshot bias. Studies find that on average, bets on longshots lose much more than do bets on favorites. This means that longshots are overbet and favorites are underbet. By using a large data set of pari-mutuel harness horse races, we show that the favorite-longshot bias exists in Germany as well. We provide evidence that there is bias not only for simple win bets, but also for other types of bets as well, and that the bias is a time- and track-invariant phenomenon. The bias is consistent with the assumption of the (local) love of risk of the betting audience.

Keywords: Favorite-Longshot-Bias, Horse Race, Market Equilibrium, Risk

Suggested Citation

Winter, Stefan and Kukuk, Martin, Risk Love and the Favorite-Longshot Bias: Evidence from German Harness Horse Racing. Available at SSRN: https://ssrn.com/abstract=940368

Stefan Winter (Contact Author)

Ruhr Universität Bochum - Faculty of Economics ( email )

Ruhr University of Bochum
Faculty of Economics
D-44780 Bochum, DE 44780
Germany
49-234-3228337 (Phone)

Martin Kukuk

University of Würzburg - Institute of Economics and Social Sciences ( email )

Sanderring 2
Wuerzburg, 97070
Germany

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