Favourite-longshot bias

In gambling and economics, the favourite-longshot bias is an observed phenomenon where on average, bettors tend to overvalue "long shots" and undervalue favourites. That is, in a horse race where one horse is given odds of 2 to 1, and another 100 to 1, the true odds might for example be 1.5 to 1 and 300 to 1 respectively. Betting on the "long shot" is therefore a much worse proposition than betting on the favourite. Various theories exist to explain why people willingly bet on such losing propositions, such as risk-taking behaviour, or simply inaccurate estimation as presented by Sobel and Raines [Russell S. Sobel & S. Travis Raines, 2003. "An examination of the empirical derivatives of the favourite-longshot bias in racetrack betting," Applied Economics, Taylor and Francis Journals, vol. 35(4), pages 371-385, January] .

See also

* Rank-dependent expected utility

Notes

References

*http://bpp.wharton.upenn.edu/jwolfers/Papers/Favorite_Longshot_Bias.pdf
*http://favourite-longshot-bias.behaviouralfinance.net/