It is one of the most studied betting phenomenons, but also one that most average punters are unaware of. In this article we will investigate the favourite-longshot bias and look at how it may be effecting your punting without you even knowing.
Psychology plays a much more important role in gambling than many punters recognise, sometimes causing us to make counter intuitive decisions that go against our better judgement and common sense. But unlike the gambler’s fallacy, the favourite-longshot bias not only happens to individual punters, but effects the market as a whole and has been identified across a wide range of betting and investment markets.
Put simply, the favourite-longshot bias is a phenomenon where on average punters tend to over-value “long-shots”, and under value favourites.
For example we may see a match with a $1.12 favourite, and a $5.25 outsider, representing 85% and 15% chance of winning respectively (adjusted for the vig). According to the favourite-longshot bias, it is more likely that the favourite has a greater chance of winning (eg 90%), while the underdog is more likely to have less of a chance (eg 10%). This can also be seen in markets with more betting options such as horse races or league betting where $100 outsiders more than likely have less than a 1% chance of winning in reality.
The favourite-longshot bias phenomenon has been widely studied in academia across a range of different betting and investment markets, each arguing what drives punters and investors to be attracted to outsiders in the market and undervaluing favourites. Much of the research points to two psychological drivers behind the favourite-longshot bias, risk-loving behaviour, and the inability to accurately judge small probabilities.
Risk-loving behaviour is seen in people who have a preference for risk rather than being risk-adverse. By its nature gambling is risky, however some punters prefer to bet on longshots because of the potential larger payouts compared to favourites. How often have you looked at a market and wondered if it would be worth placing a bet on an outsider because it might be worth the payout “if” it wins?
The second factor which effects the favourite-longshot bias is our inability to accurately judge small probabilities. In the studying of the favourite-longshot bias, researchers have found that punters think that low probability events are more likely to occur than they are. This behaviour can be explained by Prospect Theory, which states that people make decisions based on the potential losses and gains rather than the final outcome of the event.
Interestingly though researchers such as David McDonald and colleagues suggest that bookmakers may be also effecting the favourite-longshot bias. He proposes that transaction costs (high market percentages which deter “smart” money), and defensive pricing by bookmakers (to reduce the risk of insider money on outsiders), also contribute to the favourite-longshot bias. In comparing bookmaker prices to betting exchanges it was found that the favourite-longshot bias reduced in the betting exchange, suggesting that “smart” punters were better valuing the chances of runners in a market.
The favourite-longshot bias is inescapable for most punters, but with solid handicapping and bankroll management you can use this knowledge of how the market is framed and how other punters behave to your advantage. And more importantly you can make sure you don’t fall into the trap of backing longshots on the “chance” that they might win.