If you are in to reading academic papers on horse racing and betting markets like me you would have read numerous times that betfair markets do not exhibit or dramatically decrease the fav - long shot bias. But is this true ?

Well it depends on the figures used. Most academics use the average of the buy/sell or the weighted price (which is flawed in my opinion for betting).


Lets look at the $50 - $100 range to make it easier for analysis. If we just look at the raw figures and the extremes. There were 11,186 selections (most academic studies use less then a few thousand selections). The payouts would have ranged between 9621 and 15225. If we reduce this to only markets which had a buy / sell spread if 25% or less for this range you get 5208 selections returning between 4447 and 4950.

Did you notice anything ? The first one was a clear loser for the top range of 15525 and the one with the lower spread is a clear winner for the top range.

Lets assume this was dumb luck. Lets try a different range. How about $100 - $300. According tot the bias these should make even more of a loss if you were to bet them. Lets use the 25% spread again. There were 2257 selections and they returned in the range of 1360 to 1580.

From 50 - 100 the result was (in percentages) 85% - 95%. From 100 - 300 the result was 60% - 70%.

Seems to be an indication of the long shot bias here. But to be sure lets look at all races $300+. There were 396 selections and they returned 500-560 so showed a loss. There was 1 winner. Unfortunately this range didn't have enough selections to use (with the 25% spread).

So lets test below $50. Lets go to $20 - $50. According to the bias this should have a higher return then the 85% to 95% return for $50 - $100.
There were 15519 for a return of 14949 to 16442. This is 96% to 105%.

This confirms my theory that that the fav long shot bias still exists on the betting exchange markets. Academics do not seem to understand the nature of the betting exchanges in most cases and they need some real world experience. It is dimished in that on the tote you would notice it from $20+ but on the exchanges it is prevalent at only the highest levels ( $50+ or higher )

How can this help your betting .... Easy. If you are going to be betting on longshots you are better to exclude those over $50 on the exchanges as they will lose more in the long term. If you are laying you should take note. Setting a upper limit on your price band (which I do too) is limiting the best part for laying.

If you can handle the risk you could setup a simple strategy of laying all selections beyond a certain point (i'll keep that point to myself) with no form study. You are simply trustng that the universal theory of fav-longhost bias holds up as it is based on human nature.

I wrote this quickly so sorry for speling errors. Need to go but would be interested to hear other peoples thoughts on this.