Explaining the favorite-longshot bias
Subtitle: is it risk-love or misperceptions?
By: Erik Snowberg, Justin Wolfers
Contributors: Wolfers, Justin; National Bureau of Economic Research
Series: NBER working paper series -- working paper 15923; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 15923.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "The favorite-longshot bias describes the longstanding empirical regularity that betting odds provide biased estimates of the probability of a horse winning-longshots are overbet, while favorites are underbet.  Neoclassical explanations of this phenomenon focus on rational gamblers who overbet longshots due to risk-love.  The competing behavioral explanations emphasize the role of misperceptions of probabilities.  We provide novel empirical tests that can discriminate between these competing theories by assessing whether the models that explain gamblers' choices in one part of their choice set (betting to win) can also rationalize decisions over a wider choice set, including compound bets in the exacta, quinella or trifecta pools.  Using a new, large-scale dataset ideally suited to implement these tests we find evidence in favor of the view that misperceptions of probability drive the favorite-longshot bias, as suggested by Prospect Theory"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 5/6/2010.

Includes bibliographical references.

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