TY  - BOOK
AU  - Snowberg,Erik
AU  - Wolfers,Justin
ED  - National Bureau of Economic Research.
TI  - Explaining the Favorite-Longshot Bias: Is it Risk-Love or Misperceptions? 
T2  - NBER working paper series
PY  - 2010///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - April 2010; Hardcopy version available to institutional subscribers
N2  - 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
UR  - https://www.nber.org/papers/w15923
UR  - http://dx.doi.org/10.3386/w15923
ER  -