The Rodney L. White Center for Financial Research Explaining the Favorite Longshot Bias: Is it Risk-Love or Misperceptions?

Abstract

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… (More)

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