BETTING MARKET: Rank Dependent Expected Utility

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Published: Jan 2, 2013
DOI: https://doi.org/10.5750/jgbe.v1i2.515
Keywords:
Betting Pelota betting system sport betting market efficiency rank dependent expected utility individual decision making.

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Loreto Llorente
Universidad Pública de Navarra

Abstract

In Pelota matches, games with two mutually exclusive and exhaustive outcomes, bets on the winner are made through a middleman who receives 16% of the finally paid amount. The classical decision theory of expected utility maximization can not explain this market assuming bettors are identical. Llorente and Aizpurua (2007) explain the existence of bets in the market under Quiggin’s rank dependent expected utility (RDEU) model. They find that bettors have to be optimistic in order to explain the existence of a bet. Analyzing the way odds are fixed in the market Llorente (2006) finds that assuming equal return on bets there are inefficiencies in the market. In this paper we show that, given an assumption that bettors are rank dependent expected utility maximizers, these inefficiencies tend to disappear.

Article Details

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Vol. 1 No. 2 (2007)
Section
Articles

References

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