Product bundling and a rule of thumb versus the Harville formulae: can each way bets with UK bookmakers generate abnormal returns
Bookmakers practise a type of product bundling. To bet a horse for a place a punter has to bet an equal amount for a win. The returns to the place component of the bet are determined by a rule of thumb. This paper examines whether the product bundling negates a betting strategy that endeavours to exploit any inefficiency in pricing of the place component of each way bets based on the Harville formulae. In order to implement the Harville formulae Shin probabilities are employed, which correct for the favourite longshot bias in starting price odds, as measures of win probabilities. The analysis suggests that small positive expected returns to each way bets appear to exist.