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responses to late scratches, instances in which a horse is abruptly withdrawn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%.