Horses

    The House Doesn’t Always Win: Evidence of Anchoring among Australian Bookies (with Patrick McAlvanah), Journal of Economic Behavior and Organization (2013), 90: 87-99.
    Abstract: We examine Australian horseracing bookmakers’ responses to late scratches, instances in which a horse is abruptly withdrawn after betting has commenced. Our observed bookies exhibit anchoring on the original odds and fail to re-adjust odds fully on the remaining horses after a scratch, thereby earning lower profit margins and occasionally creating nominal arbitrage opportunities for bettors. We also examine which horses’ odds bookies adjust after a scratch and demonstrate diminished profit margins even after controlling for these endogenous adjustments. Our results indicate that bookies’ adjustments recover approximately 80% of lost profit margin but that bookies forgo the remaining 20% due to systematic under-adjustments.

    Time to Unbridle U.S. Thoroughbred Racetracks? Lessons from Australian Bookies (with Joseph Keller), Review of Industrial Organization (2014), 44(3): 211-39 (lead article).
    Abstract: We consider a policy reform that would relax price controls in American pari-mutuel wagering on horse racing by examining bookie behavior in Australia’s fixe-odds gambling sector. Descriptive regressions indicate that bookmaker takeouts (the effective prices of races) vary substantially and systematically with race characteristics, though in sometimes counterintuitive ways. Estimates of an explicitly reduced-form model of bookie takeout, however, can qualitatively match both intuition and prior findings in the literature. Counterfactuals that use these estimates suggest that regulatory reform that permits racecourses to alter takeout across races would increase variable profit by about 5%.