Expert Analysis and Insider Information in Horse Race Betting: Regulating Informed Market Behavior

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may ABSTRACT:We present a new model analyzing the effect of uncertainty faced by bookmakers. It is shown that bettors with inside information or expert analysis decrease the odds set by profit maximizing bookmakers. Data on previously unraced two year old horses and those that have raced previously are used to examine the impact of the greater possibility of insider information on odds bias in relation to unraced horses. The price of a bet on unraced two year olds is found to be on average 15% higher and the effect varies as the probability of winning increases. The latter effect suggests a possible contribution to the favorite-longshot bias and the former shows the importance of insider information in the setting of market prices. The regulation of the use of insider information is discussed in the light of the similar impact of insider information and expert analysis on bookmaker odds.

How rational is gambling?

“…(see Gainsbury et al., 2012; Peirson & Smith, 2010). If people had only financial motives, they would instead save their time and choose stochastically dominant roulette bets, where nothing must or can be learned (see Peirson & Smith, 2010).…”

“…People spend time reading racing magazines, they analyze the past racing performances of their horses and jockeys, etc. (see Gainsbury et al, 2012;Peirson & Smith, 2010). If people had only financial motives, they would instead save their time and choose stochastically dominant roulette bets, where nothing must or can be learned (see Peirson & Smith, 2010).…”

Prometheus Bound: Releasing the Chains on Pari-Mutuel Gambling

“…A recent paper suggests that the favourite–longshot bias in fixed odds betting can be explained both by the presence of bettors with insider information and those who are experts in the field. The implication is that regulations aimed at reducing the returns to insiders should not eliminate the returns from superior skills in processing public information (Peirson and Smith, 2010). However, the evidence of the relative efficiency of pari‐mutuel systems versus the alternatives, necessary to make a policy choice between one or the other, remains thin on the ground.…”