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Empirical Evidence on Information Theory and the

Favorite Longshot Bias

William Bosworth and Anil Gulati

Western New England University

Abstract

Pari-mutuel betting provides a fertile testing ground for theories of how risk is evaluated in the market. Favorite longshot bias, the over-betting of longshots and under-betting favorites, is commonly observed in pari-mutual betting. Opportunities to test the predictive ability of the many theories that have been advanced over the past 60 years have been rare. This study uses data gathered from nine greyhound racing tracks in the United States and shows that bettors’ decisions are consistent with the predictions of a Bayes-Nash model with symmetric information advanced by Ottaviani and Sorensen (2010). (JEL D81, D83)