The Economic Significance of the Longshot Bias in Horse Race Wagering

15 Pages Posted: 2 Jul 2007  

Philip F. O'Connor

University of Auckland - Department of Accounting and Finance; University of Waikato - Management School

Date Written: June 2007

Abstract

Bets on longshots account for a small fraction of the total amount of money wagered, yet previous research treats bets on longshots as equal to bets on favorites. By value-weighting horses to represent the experience of bettors in aggregate, the favorite-longshot bias is shown to be only one-third as strong. Striking reductions in the longshot effect is found: returns to the longshot portfolio rise from -60% to -13% when value-weighting is used. Because the longshot effect is caused by very small amounts of money, it could be a function of "blind money" bet by people connected to the horse, such as an owner. As owners' blind money would become a smaller fraction of bets as total betting pools rise, evidence that the longshot effect falls as pools increase, and disappears when pools are extremely large, is consistent with this proposition.

Keywords: horse, betting, wagering, longshot, favorite-longshot effect, value-weighting

JEL Classification: D81

Suggested Citation

O'Connor, Philip F., The Economic Significance of the Longshot Bias in Horse Race Wagering (June 2007). Available at SSRN: https://ssrn.com/abstract=997789 or http://dx.doi.org/10.2139/ssrn.997789

Philip F. O'Connor (Contact Author)

University of Auckland - Department of Accounting and Finance ( email )

Private Bag 92019
Auckland 1001
New Zealand
+649-923-9431 (Phone)

University of Waikato - Management School ( email )

Hamilton
New Zealand
+64 7 838 4466 (Phone)

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