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When the league table lies: Does outcome bias lead to informationally inefficient markets?


Flepp, Raphael; Merz, Oliver; Franck, Egon (2024). When the league table lies: Does outcome bias lead to informationally inefficient markets? Economic Inquiry, 62(1):414-429.

Abstract

We study whether outcome bias persists in markets with actors who are financially incentivized to make optimal decisions. We test whether inherently noisy match outcomes from European football are correctly incorporated into prices from a betting exchange market. We find that market prices overestimate (underestimate) the winning probability of teams that previously overperformed (underperformed) in terms of match outcomes compared to their performance based on “expected goals”. This pattern is mirrored in negative (positive) betting returns on overperforming (underperforming) teams. These results suggest that even competitive market mechanisms fail to completely erase outcome bias.

Abstract

We study whether outcome bias persists in markets with actors who are financially incentivized to make optimal decisions. We test whether inherently noisy match outcomes from European football are correctly incorporated into prices from a betting exchange market. We find that market prices overestimate (underestimate) the winning probability of teams that previously overperformed (underperformed) in terms of match outcomes compared to their performance based on “expected goals”. This pattern is mirrored in negative (positive) betting returns on overperforming (underperforming) teams. These results suggest that even competitive market mechanisms fail to completely erase outcome bias.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > General Business, Management and Accounting
Social Sciences & Humanities > Economics and Econometrics
Uncontrolled Keywords:betting, exchange market, market efficiency, outcome bias, soccer
Scope:Discipline-based scholarship (basic research)
Language:English
Date:1 January 2024
Deposited On:27 Jun 2023 07:18
Last Modified:29 Apr 2024 01:38
Publisher:Wiley-Blackwell Publishing, Inc.
ISSN:0095-2583
OA Status:Hybrid
Publisher DOI:https://doi.org/10.1111/ecin.13163
Other Identification Number:merlin-id:23804
  • Content: Published Version
  • Language: English
  • Licence: Creative Commons: Attribution 4.0 International (CC BY 4.0)