In gambling and economics, the favourite-longshot bias is an observed phenomenon where on average, betters tend to overvalue "longshots" and relatively undervalue favourites. That is, in a horse race where one horse is given odds of 2-to-1, and another 100-to-1, the true odds might for example be 1.5-to-1 and 300-to-1 respectively. Betting on the "longshot" is therefore a much worse proposition than betting on the favourite. In the long run, losing 5% by betting on the favourite, but losing 40% on longshots is not uncommon.
The phenomenon was first discovered by Griffith.[1] Various theories exist to explain why people willingly bet on such losing propositions, such as risk-loving behavior, risk-averse behavior[2] or simply inaccurate estimation as presented by Sobel and Raines.[3]
Methods such as the goto_conversion,[4] Power[5] and Shin[6] can be used to measure the bias by converting betting odds to true probabilities.
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