Research on underdogs and favorites in betting markets presents a complex and often contradictory picture, with evidence supporting both the traditional favorite-longshot bias and its reversal. Some studies suggest that underdogs are systematically underbet, leading to what is termed the reverse favorite-longshot bias, where bets on underdogs yield better expected returns (Woodland & Woodland, 2011; Gandar et al., 2002). However, other research supports the persistence of the classic favorite-longshot bias, where bettors disproportionately favor longshots, often due to optimism, risk-seeking behavior, or misperceptions of probabilities (Sobel & Raines, 2003; Snowberg et al., n.d.). The debate over the origins of these biases continues, with competing theories attributing them to risk preferences, information asymmetry, or psychological factors related to how bettors perceive uncertainty and reward potential (Trumbull et al., 2000).
Interestingly, the appeal of underdogs extends beyond betting markets, with implications in broader economic and marketing contexts. For instance, in corporate sponsorships, underdog brands have been found to generate higher abnormal stock returns, possibly due to increased engagement and perceived authenticity (Borghesi et al., 2022). This suggests that underdog status can influence decision-making not only in betting markets but also in consumer behavior and financial investments. Additionally, the psychological experience of identifying with an underdog or favorite is shaped by temporal factors, with shifting perceptions influencing expectations and decision-making over time (Pettit et al., 2024).
Overall, the persistence and nature of betting biases appear to fluctuate depending on the sport, time period, and market structure, indicating that no single explanation fully accounts for these observed patterns. While some inefficiencies may exist, their reliability for long-term profitability remains uncertain, reinforcing the need for continued research to understand the underlying dynamics of betting behavior (F., n.d.; Gandar et al., 2002).
Underdogs are systematically underbet, leading to what is termed the reverse favorite-longshot bias, where bets on underdogs yield better expected returns
Summary of: Woodland & Woodland 2011; Gander Et Al 2002
Anecdote
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Articles Cited
- “Nathan C. Pettit, Sarah P. Doyle, Robert B. Lount (2024): Underdogs and favorites: Past, present, and future, https://doi.org/10.1111/spc3.12973
- The paper highlights the value of taking a multi-temporal perspective to the literature on underdogs and favorites in competitive contexts, as the psychological experience of being an underdog or favorite involves thoughts related to both the past and future.”
- “F. (-): Favorites and underdogs: Strategic behavior in an experimental contest*, –
- An experimental study examining the strategic behavior of favorites and underdogs in a contest, finding that favorites overcommit effort relative to Nash equilibrium while underdogs often select the best response, leading to higher overall dissipation of the prize.”
- “J. Gandar, Richard A. Zuber, R. S. Johnson, W. Dare (2002): Re-examining the betting market on Major League Baseball games: is there a reverse favourite-longshot bias?, https://doi.org/10.1080/00036840110095427
- The paper examines evidence for a reverse favorite-longshot bias in the fixed-odds betting market on Major League Baseball games, and concludes that there is insufficient evidence to claim this bias is a true market inefficiency.”
- “Richard Borghesi, A. Naranjo, Michael D. Ryngaert (2022): What are the odds? Underdog brands are consumer favorites, https://doi.org/10.1016/j.econlet.2022.110914
- Sponsors of underdog brands see roughly double the marginal excess returns compared to sponsors of favorite brands, as consumers are more excited about and motivated to support underdog brands.”
- “L. Woodland, Bill M. Woodland (2011): The Reverse Favorite-Longshot Bias in the National Hockey League: Do Bettors Still Score on Longshots?, https://doi.org/10.1177/1527002510368792
- The paper analyzes 10 additional seasons of NHL betting data to determine if the reverse favorite-longshot bias, where bettors overbet longshots, persists in the NHL betting market.”
- “R. Sobel, S. Travis Raines (2003): An examination of the empirical derivatives of the favourite-longshot bias in racetrack betting, https://doi.org/10.1080/00036840110111176
- The paper examines two theoretical explanations for the favorite-longshot bias in racetrack betting, finding that an information-based model better explains the data than the risk preference model.”
- “Bill Trumbull, Ron Balvers, Thomas Garrett, Raymond Sauer, Gary Wagner, Ashley Lorance, William Grant Ziyu Luo, R. Sobel, S. Raines (2000): An Examination of the Empirical Derivatives of the Favorite-Longshot Bias in Racetrack Betting * Draft, –
- The paper examines the favorite-longshot bias in racetrack betting and tests two theoretical explanations for this bias, finding that an information-based model better explains the data than a risk preference model.”
- “E. Snowberg, J. Wolfers, Jon Bendor, Bruno Jullien, Steven Levitt, Kevin Murphy, Marco Ottaviani, Bernard Salaniè, Peter Norman Sørenson, Betsey Stevenson, Matthew White, William (-): Nber Working Paper Series Explaining the Favorite-longshot Bias: Is It Risk-love or Misperceptions?, –
- The paper examines two competing theories for the favorite-longshot bias in horse race betting – the neoclassical theory that it is due to risk-loving behavior, and the behavioral theory that it is due to misperceptions of probabilities – and finds evidence supporting the behavioral theory.”
Insufficient Detail?
At times it is difficult to answer the question as there are not enough relevant published journal articles to relate. It could be that the topic is niche, there’s a significant edge (and researchers prefer not to publish), there is no edge or simply no one has thought to investigate.
