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Bets and Bids: Favorite-Longshot Bias and Winner's Curse

SSRN Electronic Journal
  • 1
    Citations
  • 2,438
    Usage
  • 7
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    1
    • Citation Indexes
      1
  • Usage
    2,438
    • Abstract Views
      2,124
    • Downloads
      314
  • Captures
    7
  • Ratings
    • Download Rank
      194,227

Article Description

A well-documented anomaly in racetrack betting is that the expected return per dollar bet on a horse increases with the probability of the horse winning. This so-called favorite- longshot bias is at odds with the presumptions of market efficiency. We show that the bias is consistent with betters having myopic beliefs. If betters neglect the fact the popularity of a horse indicates that other people have favorable information about that horse, then they bet less on the favorite than they should. This myopia is related to, though stronger than, the judgmental bias that lead to the winner's curse in auctions.

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