The Economics of Sports Betting
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The Economics of Sports Betting

Edited by Plácido Rodríguez, Brad R. Humphreys and Robert Simmons

This unique book delves into a number of intriguing issues and addresses several pertinent questions including, should gambling markets be privatized? Is the ‘hot hand’ hypothesis real or a myth? Are the ‘many’ smarter than the ‘few’ in estimating betting odds? How are prices set in fixed odds betting markets? The book also explores the informational efficiency of betting markets and the prevalence of corruption and illegal betting in sports.
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Chapter 6: New empirical evidence on the Tote–SP anomaly and its implications for models of risky choice in gambling markets

Babatunde Buraimo, David Peel and Robert Simmons

Abstract

In North America and Europe, the dominant mode of horse race betting is pari-mutuel where the operator takes a fixed commission and winners share a pool of betting money. In the United Kingdom, this betting format is known as the ‘Tote’. But unlike Europe and North America, United Kingdom bettors can choose to bet on the pari-mutuel form or at fixed-odds offered by on-course and off-course bookmakers. This raises the question, addressed in this chapter, of whether returns for winning bets are similar across both types of market. The authors investigate UK horse racing and find that returns for winning bets are superior in the pari-mutuel market, compared to fixed-odds bets, for long shots but not at short odds. The authors rationalize this finding in terms of how odds are set by bookmakers together with gamblers’ attitudes to risk, bearing in mind that the pari-mutuel sector is a more risky proposition for a gambler given that odds are unknown ex ante.

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