Authors: Durham, Greg; Santhanakrishnan, Mukunthan

Source: The Journal of Prediction Markets, Volume 2, Number 2, September 2008 , pp. 13-28(16)

Publisher: University of Buckingham Press

Abstract:

Griffin and Tversky (1992) suggest that individuals, when formulating posterior probabilities based on the available evidence, tend to overreact to a new piece of evidence's strength while underreacting to the relative importance of its weight. We test this prediction using the college football betting market, a market that is commonly employed in tests for efficiency and rationality. Using average points in excess of the spread and streak against the spread as measures for strength and weight, respectively, we find that bettors overreact to strength and underreact to weight. These results are consistent with the predictions of Griffin and Tversky, as well as with the findings of Sorescu and Subrahmanyam (2006) and Barberis, Shleifer, and Vishny (1998) in financial market settings. Our work also provides insight into how behavioral biases might affect price-formation processes in other markets.

Document Type: Research article

Publication date: 2008-09-01

More about this publication?

• Editorial Board
• Information for Authors
• Subscribe to this Title
• ingentaconnect is not responsible for the content or availability of external websites

Related content

• In this: publication
• By this: publisher
• By this author: Durham, Greg ;  Santhanakrishnan, Mukunthan

Website © Publishing Technology. Article copyright remains with the publisher, society or author(s) as specified within the article.

• Terms and conditions
• Privacy policy
• Information for advertisers