2004/04/01 by Steven D. Levitt · 384 citations
Business, Management and Accounting · Economics, Econometrics and Finance · Psychology · #Clearing #Computer science #Consumer Market Behavior and Pricing #Economics #Exploit #Finance #Financial economics #Financial market #Gambling Behavior and Treatments #Market clearing #Matching (statistics) #Microeconomics #Outcome (game theory) #Set (abstract data type) #Sports Analytics and Performance
paper · doi:10.1111/j.1468-0297.2004.00207.x
published in The Economic Journal 114(495), 223-246 (Oxford University Press)
openalex publication_date 2004/04/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/29
The market for sports gambling is structured very differently from the typical financial market. In sports betting, bookmakers announce a price, after which adjustments are small and infrequent. Bookmakers do not play the traditional role of market makers matching buyers and sellers but, rather, take large positions with respect to the outcome of game. Using a unique data set, I demonstrate that this peculiar price‐setting mechanism allows bookmakers to achieve substantially higher profits. Bookmakers are more skilled at predicting the outcomes of games than bettors and systematically exploit bettor biases by choosing prices that deviate from the market clearing price.