The efficiency of exotic wagers in racetrack betting

Abstract

Many empirical studies have found the existence of a bias where the general public overestimates low probability events. This phenomenon has been termed the favourite-longshot bias and has been much studied in betting markets. This article looks at efficiency in multihorse ‘exotic’ wagers using 11 194 races run at 35 U.S. racetracks. We find the standard favourite-longshot in exacta wagers (involves picking the first two finishers in order). Results are unclear for trifecta wagers (picking the first three finishers in order).

Notes

¹ A notorious example is the disqualification of Nicole's Dream in an allowance race at Mountaineer Park in 21 August 2006. Nicole's Dream, arguably the top turf sprinter in the U.S., was heavily favoured against six overmatched rivals. She sprinted clear to a 6.5 length win only to be disqualified and placed fourth, knocking her out of the money. The winner Bluegrass Breeze paid $71.20 to win, $23.20, to place and $109.20 to show. Second place finisher All Platinum paid $5 to place and $25 to show. This occurred because $126 000 of $132 000 in the show pool was bet on Nicole's Dream including $75 000 from a single bettor.

² There were eight winning tickets with the 5–2–7 combination from 9908 bets.