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How Does Inside Information Affect Sports Betting Odds?

Author

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  • Whelan, Karl
Abstract
We describe how the presence of insiders with superior information about potential outcomes of sporting events affects odds set by bookmakers, using a generalized version of the model in Shin (1991). The model has been widely cited as an explanation for the pattern of favorite-longshot bias observed in fixed-odds betting markets. We show that disagreement among those bettors without inside information causes favorite-longshot bias. The presence of insiders reduces odds but does not necessarily exacerbate favorite-longshot bias. For realistically calibrated beliefs, the fraction of insiders has a minimal effect on the ratio of favorite to longshot odds and the betting market collapses if this fraction rises above low levels.

Suggested Citation

  • Whelan, Karl, 2023. "How Does Inside Information Affect Sports Betting Odds?," CEPR Discussion Papers 18315, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18315
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • Z20 - Other Special Topics - - Sports Economics - - - General

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