Game, set and match: the favorite long-shot bias in tennis betting exchanges

Abstract

We test for the existence of Favorite-Longshot Bias (FLB) in tennis betting exchanges. Despite these being order-driven markets, with no direct participation from bookmakers, we have found very similar results to those obtained by Lahvička (2014) for bookmakers’ betting markets: the bias is stronger in matches between lower ranked players, in later round matches and in high profile tournaments. This suggests that bookmakers’ adjustments to respond to informed betting are not the main driver of FLB. The varying magnitude of the bias across different types of event in the main market also weakens arguments linking FLB to gamblers’ risk preferences, and suggests the need to consider the microstructure features of the market together with the cognitive biases highlighted in the behavioral finance literature.