Scottish Journal of Political Economy, 2025
A popular story about sports betting is that favourite–longshot bias is caused by insiders with information the bookmaker doesn’t have. Bookmakers fear that longshot bets might be informed, so they worsen longshot odds to protect themselves.
This paper takes that idea and asks what it implies in a realistic setting where ordinary bettors are on average correct in their assessment of probabilities.
Two key results. Insiders don’t have the impact the traditional story predicts. First, with realistic beliefs, adding a small fraction of insiders doesn’t do much to change the relative pricing of favourites versus longshots. Second, if insiders accounted for even a small fraction of betting, bookmakers would have to cut odds so much to protect themselves that normal bettors would stop betting and the market would collapse.
Key research finding: Insiders don’t generate the pattern people think they do, and widespread insider activity would tend to make the market collapse rather than quietly distort prices.
Practical advice: Bad odds on longshots are not proof that bookmakers are protecting themselves from insiders.