The favorite-longshot bias is a well-documented trend in sports betting, where bettors tend to place too much money on underdogs while not betting enough on favorites. There are two main explanations for this pattern. One theory is that some bettors enjoy taking risks and are naturally drawn to longshots, even if they are not the smartest bets (Snowberg & Wolfers, 2010). The other explanation is that bettors misjudge probabilities, thinking that longshots have a better chance of winning than they actually do. Recent research supports this second explanation, which is consistent with Prospect Theory, a psychological model that describes how people make risky decisions (Snowberg & Wolfers, 2007; Nutaro, 2023).
This bias has been found in many sports, including horse racing and baseball (Newall & Cortis, 2021; Nutaro, 2023). One reason it persists is that bettors tend to be overconfident in their predictions. They often believe they have an edge when they don’t, which leads them to place bets that are not based on realistic probabilities (Chegere et al., 2022).
Other factors, such as bet sizes and the number of possible outcomes in a betting market, can also influence this bias (Feess et al., 2016; Newall & Cortis, 2021). Since the favorite-longshot bias leads to bets being placed on worse-value odds, it can result in consistent financial losses for gamblers (Chegere et al., 2022). This issue also affects the efficiency of betting markets, especially in parimutuel betting, where odds shift based on how people bet (Ottaviani & Sørensen, 2009).
Understanding this bias is important for bettors who want to avoid common mistakes and for researchers studying how people make decisions in gambling markets.
One reason it persists is that bettors tend to be overconfident in their predictions. They often believe they have an edge when they don’t, which leads them to place bets that are not based on realistic probabilities
Summary of: Chegere Et Al 2022
Anecdote
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Articles Cited
- “M. Ottaviani, P. Sørensen (2009): Surprised by the Parimutuel Odds, https://doi.org/10.1257/AER.99.5.2129
- The paper explains the favorite-longshot bias in parimutuel betting markets, where market probabilities of favorites tend to underestimate their empirical probabilities and market probabilities of longshots tend to overestimate their empirical probabilities.”
- “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.”
- “E. Snowberg, J. Wolfers (2007): Explaining the Favorite-Longshot Bias : Is it Risk-Love or Misperceptions ? ∗, –
- The paper provides novel empirical tests to discriminate between the neoclassical and behavioral explanations for the favorite-longshot bias, finding evidence that the bias is driven by misperceptions of probability rather than risk-love.”
- “P. Newall, Dominic Cortis (2021): Are Sports Bettors Biased toward Longshots, Favorites, or Both? A Literature Review, https://doi.org/10.3390/RISKS9010022
- Sports bettors exhibit biases towards both longshot and favorite bets, with the type of bias depending on the structure of the betting market.”
- “E. Feess, Helge Müller, C. Schumacher (2016): Estimating risk preferences of bettors with different bet sizes, https://doi.org/10.1016/j.ejor.2015.09.053
- The paper extends the literature on risk preferences of bettors by accounting for odds-dependent bet sizes, and finds that this is important, as it strongly rejects the hypothesis that the favorite-longshot bias can be explained by risk-seeking bettors, and instead finds the data is best described by an overweighting of small probabilities, more pronounced in the gain domain.”
- “M. Chegere, Paolo Falco, M. Nieddu, L. Pandolfi, Mattea Stein (2022): It’s a Sure Win! Experimental evidence on overconfidence in betting behavior, –
- Sports bettors exhibit overconfidence in their ability to predict sports outcomes, which leads to greater financial losses.”
- “E. Snowberg, J. Wolfers (2007): Explaining the Favorite-Longshot Bias : Is it Risk-Love or Misperceptions ? ∗, –
- The paper provides novel empirical tests to discriminate between the neoclassical and behavioral explanations for the favorite-longshot bias, finding evidence that the bias is driven by misperceptions of probability rather than risk-love.”
- “J. Nutaro (2023): Prospect Theory and the Favorite Long-Shot Bias in Baseball, https://doi.org/10.3390/risks11050095
- The paper provides new evidence of a favorite long-shot bias in baseball betting, where bettors believe favorites are less likely to win than they actually are and long-shots more likely, which is consistent with prospect theory’s prediction that large and small probabilities are poorly estimated when making decisions with risk.”
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.
