The world of sports betting is filled with intricacies, one of the most significant being the favourite–longshot bias.
This concept explains how bookmakers adjust their odds and margins, often favoring certain outcomes over others.
Understanding this phenomenon can help bettors make informed decisions, particularly when backing underdogs or analyzing betting strategies.
How Bookmakers Add Margins to Odds
Bookmakers apply a margin to betting odds to guarantee a profit regardless of the outcome.
This margin, also known as the overround, vig, or juice, reflects the additional percentage above a fair market. For a two-player match, the margin is calculated using the formula:
Margin = [(1/a) + (1/b)] × 100%
In a fair betting system, the sum of probabilities for all outcomes equals 100%. However, bookmakers always ensure this sum exceeds 100%, adding a margin to secure their revenue.
For example, if two players have fair odds of 2.00 each, applying a 2.5% margin would shorten both odds to around 1.95.
This approach spreads the margin evenly between the two outcomes.
But in cases where a clear favorite and a longshot exist, such as odds of 1.20 and 6.00, bookmakers often distribute margins unevenly.
Instead of evenly shortening the odds (e.g., to 1.17 and 5.85), bookmakers might adjust them to 1.19 and 5.41.
In this scenario, the underdog’s odds are shortened significantly more, resulting in an effective margin of 11% for the longshot compared to just 1% for the favorite.
What Is the Favourite–Longshot Bias?
The favourite–longshot bias describes the tendency for underdogs’ odds to be disproportionately shortened compared to their fair probabilities, while favorites experience minimal adjustments.
This bias is well-documented across various sports, including horse racing, football, and tennis.
For instance, studies in horse racing during the 1992 UK flat racing season revealed that betting on runners priced below even money (2.00) resulted in a 7%
loss, while longshots at odds over 40/1 incurred losses exceeding 40%.
Similarly, analysis of English and Scottish football league matches during the 1991/92 season showed losses of only 2% when betting on favorites priced below 1.66 but 15% losses when wagering on odds over 5.00.
Evidence in Tennis Betting
Data from Pinnacle’s tennis match markets between 2011 and 2015 further highlight this bias.
While favorites priced shorter than 1.40 experienced minimal losses, longshots at odds of 10.00 or higher saw returns decline by over 20%.
This pattern reinforces the idea that underdogs’ odds are heavily skewed relative to their fair probabilities, amplifying losses for bettors who consistently back longshots.
Bookmakers with higher margins often exhibit stronger biases, as their adjustments disproportionately affect the underdog.
For example, during a match between Novak Djokovic and Borna Coric at the 2016 Madrid Masters, Pinnacle offered odds of 1.06 and 13.00, while a higher-margin bookmaker priced the same players at 1.05 and 8.00.
The significant reduction in the underdog’s odds reflects the extent of the bias.
Why Does the Favourite–Longshot Bias Exist?
Several explanations have been proposed for this phenomenon:
- Cognitive Biases: Bettors often misjudge probabilities, overestimating the chances of unlikely events (longshots) and undervaluing highly probable outcomes (favorites).
- Risk Preferences: Many bettors are risk-seekers when it comes to longshots, hoping for large payouts, while showing risk aversion towards favorites.
- Bookmaker Strategy: Bookmakers exploit bettors’ preferences by heavily adjusting longshot odds to manage liabilities and maximize profits.
Studies suggest that bettors’ demand for favorites is more elastic, meaning they are more sensitive to price changes.
Conversely, longshots attract less scrutiny, allowing bookmakers to reduce their odds without significantly affecting demand.
Betting Strategies: Backing Longshots
For those looking to profit from betting on underdogs, understanding the favourite–longshot bias is crucial.
Bookmakers often exploit bettors’ tendencies to overvalue longshots, which means the odds offered may not represent fair value.
When backing outsiders, it’s essential to:
- Compare odds across multiple bookmakers to identify the most favorable prices.
- Avoid betting with bookmakers known for heavy margins, as they often exhibit stronger biases.
- Analyze data and probabilities carefully to ensure the longshot’s odds align with realistic expectations.
Final Thoughts
The favourite–longshot bias highlights the complexities of sports betting and the importance of understanding how bookmakers set odds.
While betting on underdogs can be enticing due to potential high payouts, recognizing the inherent bias in longshot odds can prevent significant losses.
By approaching betting with a strategic mindset and focusing on fair value, bettors can navigate the challenges of this bias and make more informed decisions.
