The Effects of Risk Aversion on Wagering: Point Spread versus Odds

Woodland, Bill M.; Woodland, Linda M.

doi:10.1086/261770

Cited by 28 publications

(13 citation statements)

References 11 publications

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“…When the wagers are balanced, the net receipts for the bookie are the same regardless of the 6Proponents of this argument include Ali (1977), Asch, Malkiel, andQuandt (1982, 1984) and Quandt (1986). Conversely, Hirshleifer (1966), Bailey, Olson, and Wonnacott (1980), Thaler and Ziemba (1988), and Woodland and Woodland (1991) conclude that observed gambling behavior is inconsistent with the assumption of risk-seeking behavior. For example, if the line is (-180, + 170), then the vigorish is (1.8 -1.7)/(1.8 + 1.7 + 2) = 0.0182 or 1.82 percent.8…”

Section: Baseball and The Money Linementioning

confidence: 99%

Market Efficiency and the Favorite‐Longshot Bias: The Baseball Betting Market

Woodland¹,

Woodland²

1994

The Journal of Finance

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151

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This paper examines the efficiency of the legal gambling market for major league baseball. Weak‐form tests of market efficiency within and across odds lines are performed. Surprisingly, the consistently observed favorite‐longshot bias in racetrack betting is shown to exist in reverse for baseball bettors. However, these and other deviations from efficiency are shown to be insufficient to allow for profitable betting strategies when commissions are considered.

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Section: Baseball and The Money Linementioning

confidence: 99%

Market Efficiency and the Favorite‐Longshot Bias: The Baseball Betting Market

Woodland¹,

Woodland²

1994

The Journal of Finance

Self Cite

151

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“…Because my data only cover straight bets, I do not focus on these other bet types. Woodland and Woodland (1991) argue that the use of point spreads as opposed to odds that depend only on which teams wins or loses is a bookmaker profit‐maximising response to risk aversion on the part of bettors.…”

mentioning

confidence: 99%

Why are Gambling Markets Organised so Differently from Financial Markets?

Levitt

2004

The Economic Journal

313

293

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The market for sports gambling is structured very differently from the typical financial market. In sports betting, bookmakers announce a price, after which adjustments are small and infrequent. Bookmakers do not play the traditional role of market makers matching buyers and sellers but, rather, take large positions with respect to the outcome of game. Using a unique data set, I demonstrate that this peculiar price-setting mechanism allows bookmakers to achieve substantially higher profits. Bookmakers are more skilled at predicting the outcomes of games than bettors and systematically exploit bettor biases by choosing prices that deviate from the market clearing price.There are many parallels between trading in financial markets and sports wagering. First, in both settings, investors with heterogeneous beliefs and information seek to profit through trading as uncertainty is resolved over time. Second, sports betting, like trading in financial derivatives, is a zero-sum game with one trader on each side of the transaction. Finally, large amounts of money are potentially at stake.

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“…Because my data only covers straight bets, I do not focus on these other bet types. Woodland and Woodland (1991) argue that the use of point spreads as opposed to odds that depend only on which teams wins or loses is a bookmaker profit-maximizing response to risk aversion on the part of bettors. 6 strategically setting prices to achieve profits that are likely higher than would be possible if they simply acted as market makers letting supply and demand equilibrate prices.…”

mentioning

confidence: 99%

How Do Markets Function? An Empirical Analysis of Gambling on the National Football League

Levitt¹

2003

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The market for sports gambling is structured very differently than the typical financial market. In sports betting, bookmakers announce a price, after which adjustments are small and infrequent. As a consequence, bookmakers do not play the traditional role of market makers whose primary function is to match buyers and sellers, but rather, take large positions with respect to the outcome of game. Using a unique data set that includes both prices and quantities of bets placed over the course of an NFL season, I demonstrate that this peculiar price-setting mechanism allows bookmakers to achieve substantially higher profits than would be possible if they played the role of the typical market maker. Bookmakers are more skilled at predicting the outcomes of games than bettors and are able to systematically exploit bettor biases by choosing prices that deviate from the market clearing price. While this strategy exposes the bookmaker to risk on any particular game, in aggregate the risk borne is minimal. Bookmaker profit maximization provides a simple explanation for heretofore puzzling deviations from market efficiency that were observed in past empirical work. I find little evidence that there exist bettors who are systematically able to beat the bookmaker, even given the distorted prices that bookmakers set. The results concerning whether aggregating across bettor preferences improves the ability to forecast outcomes are inconclusive.

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The Effects of Risk Aversion on Wagering: Point Spread versus Odds

Cited by 28 publications

References 11 publications

Market Efficiency and the Favorite‐Longshot Bias: The Baseball Betting Market

Market Efficiency and the Favorite‐Longshot Bias: The Baseball Betting Market

Why are Gambling Markets Organised so Differently from Financial Markets?

How Do Markets Function? An Empirical Analysis of Gambling on the National Football League

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