On the positive expected utility of combination wagers

We demonstrate that a utility maximizing individual with an everywhere concave utility function may optimally wager on two or more outcomes in an event even though the expected returns to a unit stake are negative on all outcomes except one

To What Extent do Investors in a Financial Market Anchor Their Judgments? Evidence from the Hong Kong Horserace Betting Market

This paper explores the use of the anchoring and adjustment heuristic by decision makers in a financial market; in particular, the degree to which horserace bettors anchor their probability judgments on the advantage afforded by a horse‟s barrier-position. The results suggest that under certain conditions bettors anchor on barrier-position information revealed at previous race meetings, but not on the most recent race outcomes. In fact, bettors appear to use the most recent race outcomes appropriately when forming probability estimates; but only when the results are in line with their mental model of barrier-position advantage. Bettors with varying levels of expertise are shown to be subject to anchoring, although greater expertise is generally associated with less anchoring. The paper concludes that the manner and degree of anchoring in real world environ.

Exploring decision makers' use of price information in a speculative market

We explore the extent to which the decisions of participants in a speculative market effectively account for information contained in prices and price movements. The horse race betting market is an ideal environment to explore these issues. A conditional logit model is constructed to determine winning probabilities based on bookmakers' closing prices and the time-indexed movement of prices to the market close. We incorporate a technique for extracting predictors from price (odds) curves using orthogonal polynomials. The results indicate that closing prices do not fully incorporate market price information, particularly information that is less readily discernable by market participants