Optimal Pricing in the Online Betting Market
30 Pages Posted: 11 Jan 2013 Last revised: 30 Apr 2021
Date Written: May 1, 2020
I find that the optimal price of a bet for a risk-averse bookmaker is a function of elasticity of demand and the number of outcomes of the betting event. In the presence of shocks to the order flow, however, the optimal price can change, and large adjustments can create arbitrage opportunities for informed investors. Using a large sample of online bookmakers and a unique data set of real-time betting odds, I find strong support for these predictions. Overall, the results shed new light on the efficiency of online betting prices.
Keywords: Betting market; Market efficiency; Risk aversion; Arbitrage
JEL Classification: G10; G12; G14
Suggested Citation: Suggested Citation