2006/04/24 by MICHAEL A. SMITH, Michael Smith, DAVID PATON +3 · 101 citations
Business, Management and Accounting · Economics, Econometrics and Finance · Psychology · #Advertising #Business #Competition (biology) #Computer science #Consumer Market Behavior and Pricing #Database transaction #Economics #Efficient-market hypothesis #Financial economics #Gambling Behavior and Treatments #Horse racing #Market efficiency #Microeconomics #Sports Analytics and Performance #Stock market #Test (biology) #Transaction cost
paper · doi:10.1111/j.1468-0335.2006.00518.x
published in Economica 73(292), 673-689 (Wiley)
openalex publication_date 2006/04/24 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/23
Bookmakers have argued that person‐to‐person internet ‘betting exchanges’ represent unfair competition. In this paper we suggest that, in fact, betting exchanges have brought about significant efficiency gains by lowering transaction costs for consumers. We test this hypothesis using matched data on UK horse racing from betting exchanges and from traditional betting media. In comparison with traditional betting media, we find that betting exchanges exhibit evidence of significantly lower market biases. We also find that an information‐based model explains the well documented favourite–longshot bias more convincingly than traditional explanations based on risk preferences.