One interesting result that may mess up a lot of thinking about the relationship between bias and stake is that whereas many relatively small horse betting markets display a favorite-longshot bias, the biggest of them all in terms of pool sizes, Hong Kong, does not — and it once had a reverse bias (favorites were over-backed relative to longshots), but this disappeared in around 1990.

I suspect, and hope to demonstrate sooner rather than later, that this bias is due not to psychology, but to information asymmetry. I have already found (with Barbara Luppi) that Hong Kong bettors do display loss aversion. Now since there is no favorite-longshot bias, the latter can't be due to prospect theory or other such behavioral mess-ups.

Adam Robinson remarks:

Size of stake is relative. It is "in the eyes of the investor." A wealthy individual may view a $1m stake as small, whereas a middle-class investor might view the same stake as enormous.

As described in Fortune's Formula, large, "scientific" gambling syndicates migrated to Hong Kong because of the larger pool of money available, which may at least partially account for persistent anomalies being rigorously exploited away.

Adi Schnytzer replies:

The syndicates have removed the reverse favorite-longshot bias, but are even more loss averse than the regular outsiders!


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