Favourite-Longshot bias : theoretical explanations

[Magemax]

Hello, I'm at the moment working on a thesis about the betting markets, and, more specifically, on the favourite-longshot bias. Many explanations of this phenomenon have been proposed, and I try to mention all of those in my study (transaction costs, risk loving, misperception in probabilities, etc.) But there is one explanation that I don't understand, and I was wondering if maybe someone could help me : it concerns insider Trading. Shin (1991, 1992, 1993) argues that the FL bias comes from the bookies, that want to back themselves against informed bettors. I can understand why a bookie would set shorter odds even if he doesn't try to make a margin (to protect against the risks he is bearing by making the marker), but I don't understand why the odds adjustment should be greater for the longshots than for the favourite : isn't it the same thing ? :notworthyIf someone could help me, he would get a special thank in my study (which you won't care cause you won't read it cause it's written in french).:notworthy TIA Magemax

[cavello]

Re: Favourite-Longshot bias : theoretical explanations With bookmaker it is prettty easy to explain. In the majority of races and particularly non-handicaps most of the bets struck are on the first 2 or 3 in the betting. Therefore bookies are in intense competition to get business. With pool betting harder to explain. Have you checked to see the work of Dr Ziemba. Also read Fixed Odds Sports Betting by Joseph Buchdahl.