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Bias Induced by Risk Budgets in Betting Markets

Jason West & Vladimir Kazakov

Journal of Prediction Markets2025https://doi.org/10.5750/jpm.v18i2.2128article
AJG 1
Weight
0.50

What the paper says

Empirical observations of implied odds from horse race handicapping suggest that, on average, betting markets are informationally efficient. However, longshots are often mispriced. We argue that an implicit risk budget, particularly for races with large field sizes, artificially limits the correct pricing of genuine longshots. This impacts the implied probabilities and therefore prices paid for other runners in a race. Using entropy measures, we demonstrate this mispricing is systemic through betting markets.

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Cite this paper

https://doi.org/https://doi.org/10.5750/jpm.v18i2.2128

Or copy a formatted citation

@article{jason2025,
  title        = {{Bias Induced by Risk Budgets in Betting Markets}},
  author       = {Jason West & Vladimir Kazakov},
  journal      = {Journal of Prediction Markets},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.5750/jpm.v18i2.2128},
}

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Bias Induced by Risk Budgets in Betting Markets

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.