Swiss Finance Institute Research Paper Series N14-19

Are Behavioral Biases Stable Across Markets and Prevalent Across Individuals? Evidence from Individual Betting Choices
Angie ANDRIKOGIANNOPOULOU
University of Geneva and Swiss Finance Institute

Filippos PAPAKONSTANTINOU
Imperial College London

Electronic copy available at: http://ssrn.com/abstract=2405022

ARE BEHAVIORAL BIASES STABLE ACROSS MARKETS AND PREVALENT ACROSS INDIVIDUALS? EVIDENCE FROM INDIVIDUAL BETTING CHOICES
Angie Andrikogiannopoulou HEC Geneva & Swiss Finance Institute Filippos Papakonstantinou Imperial College London

February 2014

HEC, University of Geneva and Swiss Finance Institute, 102 Bd Carl Vogt, CH-1211 Geneva 4, Switzerland, Angeliki.Andrikogiannopoulou@unige.ch. Imperial College Business School, Tanaka Building, South Kensington Campus, London SW7 2AZ, UK, e-mail: fpapakon@imperial.ac.uk.

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Electronic copy available at: http://ssrn.com/abstract=2405022

Abstract We use a unique panel dataset of individual activity in a soccer wagering market, to study the extent to which individuals betting behavior is affected by biases such as the representativeness bias, the limited-attention bias, and the home/local bias. Sports betting markets provide a real-world empirical setting with many similarities with traditional nancial markets but with experimental-like features. The study of this alternative market enables us to test whether the documented biases are stable across markets, and to better disentangle rational versus behavioral explanations of observed behavior through direct tests of market efciency and portfolio performance. In addition, our long panel dataset renders an individual-level analysis of behavior possible, hence enables us to study the prevalence of these biases in the cross-section. We nd that participants in the soccer wagering market adhere to the same heuristics as investors in the stock market, as patterns in team past performance, team popularity, and team location signicantly affect individual bet selection and portfolio weighting decisions. Furthermore, we nd that none of the sentiment variables contains information about match outcomes that is not reected in the quoted prices, and that individuals do not earn signicantly higher returns from betting on teams on long winning streaks, on popular teams, or on domestic/local teams. This evidence indicates that the observed behavior is not driven by superior information but rather by sentiment, and could provide useful insights about the sources of analogous biases in the stock market, where tests of efciency and superior performance are not as clean. The individual-level analysis shows that the local bias is less evident across individuals relative to the other biases, and that while these biases affect most individuals bet selection decision, they are not prevalent across individuals in the portfolio weighting decision. Keywords: Behavioral Biases, Market Efciency, Investor Sentiment, Sports Betting, Gambling, Individuals JEL Classication: D12, D81, G00

Electronic copy available at: http://ssrn.com/abstract=2405022

Introduction

A large experimental literature has shown that cognitive biases, such as overcondence, a belief in the law of small numbers, and familiarity bias, often affect individual behavior. An open question is whether the behavior that is observed in the experimental laboratories and is hence assumed by behavioral theories in economics and nance carries over to the real world. With this goal in mind, a number of nance studies use data on individual trading activity in the stock market to test for biases in peoples trading behavior. In this paper, we complement and extend this line of research by studying peoples behavior using a unique panel dataset of individual activity in an online soccer wagering market. First, the study of this alternative market enables us to test whether the documented biases are stable across settings. Second, the experimental-like nature of this real-world market in particular, the revelation of all asset values at an exogenous termination point allows us to better disentangle rational versus behavioral explanations of observed behavior. Finally, the large number of observations per individual renders an individual-level analysis of behavior possible, hence enables us to study the prevalence of these biases in the cross-section. Sports betting markets are large and fast-growing, with billions of dollars wagered on sport events each year.1 These markets share a lot of similarities with more traditional nancial markets: they are populated with a large number of participants with different levels of sophistication (e.g., noise traders and arbitrageurs), who risk capital on the uncertain outcome of future events; information about sports teams and events is widely available in the news, as is information about companies and stock prices; sports bookmakers are analogous to market makers, while sports handicappers play the role of nancial analysts. Many researchers have also emphasized the similarity between gambling and individuals investment behavior. For example, Barberis and Huang (2008) suggest that overweighting of low probabilities often proposed as an explanation of gambling might explain investors preference for stocks with positive skewness; while Kumar (2009b) shows that individual investors prefer lottery-type stocks characterized by negative expected value,
to the H2 Gambling Capital report (February 2013), the legal sports betting market globally is estimated to be worth C11.5 billion in gross gaming revenue (i.e., amount wagered minus winnings returned to bettors) in 2012 and is expected to grow to around C14 billion by 2015. With an average commission between 5% and 10%, this implies that people wagered more than C100 billion on legal sports bets in 2012. However, the amount of illegal sports wagers is estimated to be much higher. According to the report of the National Gambling Impact Study Commission in 1999, an estimated $380 billion worth of illegal sports wagers were being placed at the time annually in the US alone; this number is likely signicantly higher today.
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high variance, and high positive skewness and that investors who prefer lottery-type stocks have similar socioeconomic characteristics to people who buy lottery tickets. On the other hand, distinct features of the sports betting market as an empirical setting are that assets (i.e., the wagers) are short-lived, that their fundamental value is revealed with certainty at the conclusion of the relevant sports event, that there is no systematic risk, and that individuals typically engage in a large number of active repeated choices. Contrary to the stock market, the presence of an exogenous terminal value for each bet, which is determined by match outcomes, allows for a direct measurement of investment performance, and therefore, for clear tests of individual rationality and market efciency that are free from assumptions about the underlying asset pricing model. Previous researchers have identied the experimental-like features of sports betting markets and the useful insights that these markets can provide for conventional nancial markets; however, data availability constraints have restricted existing studies to market-level analyses of behavioral biases using aggregate data on bet prices and outcomes (e.g., Gandar et al., 1988; Gray and Gray, 1997; Brown and Sauer, 1993; Avery and Chevalier, 1999; Durham et al., 2005). To our knowledge, this is the rst study that examines behavioral biases using proprietary betting data at the individual level. Our dataset contains the complete betting histories of a random subsample of 500 online sports gamblers over a period of 5 years, from 2005 to 2010. We use this data to test whether individuals exhibit a preference towards teams on a performance streak, teams that catch peoples attention, or teams that are located in their area or country of residence. Each of these sentiment variables has a natural analogue in stock investing. In addition, we test if the quoted prices are efcient with respect to the sentiment variables and whether individuals can earn excess returns, to examine whether individual preference towards specic team characteristics is driven by irrationality such as familiarity bias or a misguided belief in momentum, or by rational motives such as superior information. Finally, we use our relatively large panel containing, on average, 238 bets per individual, to study the distribution of these biases in the cross-section. In more detail, the rst psychologically-motivated behavior that we examine is the tendency of individuals to erroneously rely on past events or historical data patterns in their decisions. Tversky and Kahneman (1974) rst proposed that this behavior is produced by the representativeness heuristic, according to which people expect small samples to be representative of the underlying distribution. Several experiments have demonstrated that subjects expect outcomes of random se2

quences to exhibit either systematic reversals (gamblers fallacy) or excessive persistence (hot hands).2 In nancial markets, the representativess heuristic causes stock market investors to overweight the importance of stocks past performance and to follow contrarian or momentum trading strategies.3,4 In our market setting, we test whether individuals consistently extrapolate past team performance into the future and over-bet teams that are on winning or losing streaks. In an unconditional analysis of individuals monthly bet portfolios, we nd that, relative to the market portfolio constructed by randomly picking from all wagers available in the market, individuals portfolios are signicantly tilted towards (away from) wagers backing teams on long winning (losing) streaks: 18% (3%) of the average individual portfolio is assigned to teams on long winning (losing) streaks, while these teams make up 8% (7%) of the market portfolio. Analyzing the decision to back specic teams and what portfolio weight to assign to them conditional on all selected wagers, we nd that the average individual is 34% more likely to back and allocates a 20% higher portfolio weight to a team on a long winning rather than on a long losing streak. Another common psychological phenomenon is the tendency of individuals to develop a preference for things merely because they are familiar to them (familiarity bias). Financial investors have been observed to disproportionately invest in familiar assets, such as stocks of the company they work for or of companies that are located close to where they live.5 In this study, we examine whether individuals behave in a similar manner when it comes to sports betting. Our data contain information on individual zip codes, so we are able to identify teams that are based in each individuals home location and test whether people exhibit a preference towards their domestic and local teams.6 In the unconditional analysis, we nd that 15% (5%) of the average individual portfolio
Rabin (2002) for a comprehensive review of this literature. evidence on individuals behavior is mixed: Grinblatt and Keloharju (2001b) nd that Finnish investors are net buyers of stocks with negative past returns; Grifn et al. (2003) nd that individuals trading in Nasdaq 100 stocks are more likely to sell past winners than past losers; Barber et al. (2009) nd that U.S. investors are inclined to both buy and sell stocks that have strong past returns, arguing that buying behavior is consistent with the representativeness heuristic, while selling behavior is consistent with the disposition effect. 4 The representativeness heuristic together with the conservatism bias, i.e., the tendency of investors to underweight new evidence relative to prior beliefs, have been used in theoretical models to explain the observed short-run momentum and long-run reversals in stock returns (see, e.g., Barberis et al., 1998). Some recent papers (Bloomeld and Hales, 2002; Durham et al., 2005; Asparouhova et al., 2009) use experimental or betting price data to test whether people behave as hypothesized in the model of Barberis et al. (1998) and nd contradicting evidence. 5 Ivkovic and Weisbenner (2005) and Seasholes and Zhu (2010) use individual trading data from a U.S. brokerage rm to show that U.S. investors exhibit a strong preference towards local investments. Grinblatt and Keloharju (2001a) present similar evidence for Finnish investors, Feng and Seasholes (2004) for Chinese investors, and Massa and Simonov (2006) for Swedish investors. 6 Domestic (local) teams are dened as the teams that are based in an individuals country (regional area) of
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is allocated to domestic (local) teams, while these teams make up only 3% (0.6%) of the market portfolio. In the conditional analysis, we nd that the average individual is 7% (9%) more likely to back a domestic (local) team, and allocates a 37% (52%) higher portfolio weight to wagers on matches that involve a domestic (local) team. Finally, it is well known that individuals have a limited attention span, which complicates their decision making process when faced with an excessive number of alternatives. To facilitate choice, people tend to reduce the number of alternatives they consider by applying simple heuristics that are reinforced by attention-grabbing events. For example, in nancial markets it has been observed that investors consider only a limited number of available stocks, such as stocks that are in the news, or stocks that experience high trading volume and/or extreme previous days returns (Barber and Odean, 2008; Seasholes and Wu, 2007).7 To examine whether limited attention also affects individual betting behavior, our third set of tests focuses on whether individuals in our sample systematically bet on attention-grabbing teams, such as teams that are ranked at the top of the world standings each year, appear a lot in the media, and/or have high fan avidity. In the unconditional analysis, we nd that 21% of the average individual portfolio is allocated to popular teams, while these teams make up only 2% of the market portfolio. In the conditional analysis, we nd that the average individual is 23% more likely to back a popular team, and allocates a 23% higher portfolio weight to wagers on matches that involve a popular team. The aforementioned evidence shows that individuals betting choices are affected by team characteristics like performance streaks, popularity, and locality. As we have already mentioned, this evidence could indicate that individuals betting behavior is biased, but it could also be consistent with rational behavior in case these team characteristics are associated with exploitable mispricings. Indeed, a couple of studies in the nance literature have studied whether the documented preference for familiar (i.e., local) investments is rational or not: Ivkovic and Weisbenner (2005) nd that the preference for local stocks is driven by an informational advantage leading to superior investment performance, while Seasholes and Zhu (2010) nd that it is driven by a belief bias, leading to investor under-diversication and under-performance. These studies are complicated by the fact that, in the stock market, assets true fundamentals are unknown and measures of
residence. 7 Similar examples can be found in other domains, e.g., job search (Sheridan et al., 1975) and university choice (Rosen et al., 1998).

portfolio performance depend on estimating Jensens alpha using a potentially mis-specied asset pricing model. On the other hand, in a betting market, we observe the terminal value of all assets, hence we can directly test for market efciency and evaluate the performance of individuals portfolios, and therefore we can more clearly disentangle rational and behavioral explanations of the observed behavior. We nd that none of the sentiment variables contains information about match outcomes that is not reected in the quoted prices, hence the market under study seems to be efcient with respect to the variables of interest. In addition, we nd that individuals do not earn signicantly higher returns from betting on teams on long winning streaks, on popular teams, or on domestic/local teams. Thus, we conclude that the average individuals preference towards wagers that back teams with these characteristics is not driven by a rational prot motive, but rather by a behavioral bias. From the above analysis, we conclude that the average individual exhibits a pronounced preference toward teams that are on long winning streaks, popular teams, and domestic/local teams, both relative to the market, and conditional on their betting portfolios. The fact that similar behavior has been documented for individual stock market investors suggests that individual behavior in both markets might stem from inherent human biases in forming beliefs rather than rationally justied motives. Next, we take the analysis of individual behavior one step further by studying the prevalence of belief biases in the cross-section. We can summarize our results along two dimensions. First, across the analyses of the unconditional and conditional betting and portfolio weighting decisions, we nd quite consistently a more prevalent bias towards popular teams, domestic teams, and teams on a winning streak, and a less prevalent bias towards local teams. Second, we nd that these biases are much stronger in the unconditional analysis of the bet selection decision, less strong in the conditional analysis of the bet selection decision, and very weak (to the point of being essentially non-existent) in the conditional analysis of the portfolio weighting decision. In particular, the results on the conditional analysis of the portfolio weighting decision paint a markedly different picture than the corresponding results in the panel-regression analysis, where we nd that all biases are signicant; this contrast illustrates the importance of performing this analysis at the individual level to understand the prevalence of these biases in the population. The remainder of the paper is organized as follows. Section 2 discusses the related literature; 5

Section 3 describes the betting market under study, and Section 4 describes the data and the variables of interest. Section 5 compares the composition of the individual and market portfolios and Section 6 examines individual bet selection and portfolio weighting decisions conditional on the observed bets. Section 7 presents the results of the market efciency tests and Section 8 tests for the rationality of individual betting strategies by examining their returns. Section 9 studies the prevalence of each bias in the cross-section; Section 10 examines the relationship between biases and individual characteristics; and Section 11 concludes.

Related Literature

This paper is related to two strands of literature. The rst strand contains an abundance of experimental papers that study individual behavior in controlled laboratory settings. An important advantage of these studies is that they can control for confounding effects that may affect observed choices, and hence, rule out alternative interpretations of the results. For example, the experimenter can control, among other things, for the choice set faced by each individual, for the stochastic process that underlies the observed sequences of outcomes, and for information asymmetries across individuals. However, inferences are made based on a (usually small) sample of individuals (usually students) who might have no real incentive to follow the instructions and/or truthfully reveal their preferences. To examine the robustness of the experimental results in the real world, a second strand of related literature uses eld data on the behavior of a more motivated, naturally incentivized sample of individuals. The nance literature has studied the trading behavior of individual investors using proprietary brokerage data on individual trading activity. An important advantage of these studies is that they can give us direct insights about the behavior of individuals and the formation of asset prices in regular nancial markets. Due to data availability constraints, the majority of evidence in this literature is based on a single dataset that contains trades and monthly positions of households at a major U.S. discount brokerage house from 1991 to 1996.8 This widely used dataset contains a
for example, Barber and Odean (2000, 2001, 2002), Dhar and Zhu (2006), Goetzmann and Kumar (2008), Graham and Kumar (2006), Ivkovic et al. (2005), Ivkovic and Weisbenner (2005), Kumar (2009a,b), Kumar and Lee (2006), Kumar and Lim (2008), Seasholes and Zhu (2010). See also Barber and Odean (2008) and Barber et al. (2009) for an expanded version of this dataset.
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large cross-section of 78, 000 households, but is somewhat hampered by a limited number of observations per individual, as the average household holds only 4 stocks and executes only 9 trades per year. Therefore, the results of these studies pertain to the existence of average effects and not to the distribution of these effects in the population. Furthermore, stock fundamentals are unknown, making it hard to examine whether individual investment strategies are driven by rational motives or belief biases.9 Finally, holding and selling decisions complicate the analysis of individual behavior in the stock market, as observed choices might be affected either by the individuals past investment performance or by the stocks past performance. Studying individual behavior in betting markets lies in between the previous two strands of literature; not only is it is a real-world setting where people risk their own money, but it also has some attractive experimental-like features. First, individuals make a large number of active repeated choices, which enables us to perform individual-level analysis and estimate the proportions of individuals exhibiting biased behavior. Second, bets obtain an exogenous terminal value in a short period of time, which provides information about the fundamental value of assets and, therefore, a means to measure the performance and test the rationality of individual investments. Furthermore, assets (bets) can only be bought, they cannot be sold or held for long periods of time, and as a result, individual past performance is not confounded with team past performance. Having said that, while any ndings from betting markets can directly inform us about individual behavior in these markets, they can only indirectly inform us about individual behavior in other nancial markets. Even though sports betting and stock investing are very similar activities, additional motives might drive individual preference to certain teams versus certain stocks. For instance, fan loyalty might be an important factor that drives betting behavior, as team fans might derive utility out of the entertainment value of spectating matches or out of fan group membership. Furthermore, even though the objective of both sports gamblers and stock investors is to maximize the expected utility of their wealth, contrary to stock investments, sports bets have negative expected value due to the commission charged by the bookmaker. Therefore, a sample of sports gamblers might not be representative of the population of stock market participants, and/or individual behavior might vary across contexts. Therefore, the extent to which the results of this study can be extrapolated
example, nance studies have found contradicting evidence about whether the preference towards local stocks is driven by a belief bias or by an informational advantage (e.g., Ivkovic and Weisbenner, 2005; Seasholes and Zhu, 2010).
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to regular nancial markets depends on our assessment of the similarity between the two markets. This is essentially an empirical question, which can be answered only by comparing individual behavior in the two markets. In this study, we show that in both settings the average individual adheres to the same heuristics to decide on his investments, which reinforces the similarity between the two markets and suggests that in both settings observed behavior likely stems from inherent human biases in forming beliefs rather than rationally justied motives. In light of the attractiveness of sports betting markets as a research setting, and the similarities these markets share with regular nancial markets, several studies have used aggregate data on bet prices to perform clearer tests of market efciency and investor sentiment. Avery and Chevalier (1999) and Durham et al. (2005) examine what affects changes in point spreads over the betting period in the U.S. football betting market.10 Avery and Chevalier (1999) nd that various sentiment variables, such as experts opinions, patterns in team past performance and team popularity, signicantly predict point spread movements, while Durham et al. (2005) nd that bettors have a non-monotonic response to the length of teams performance streaks.11 However, the lack of individual-level data forces these studies to focus on the behavior of the marginal agent who determines the market prices, while it makes it prohibitive to test for the existence of individual-specic biases, such as the bias towards local teams. As a result, they cannot provide evidence about the existence and direction of behavioral biases in the average individual. For instance, when examining whether investor sentiment affects changes in point spreads, it is difcult to know the extent to which these changes are caused by sentimental bettors who push the spread away from its efcient value or due to arbitrageurs who correct any sentiment-related mispricing in the opening spread.12 The current study is distinct from previous studies on betting markets in that it uses detailed individual-level information to analyze individual behavior.
point spread betting markets, people are betting on the score difference between teams rather than the outcome of the game. 11 Brown and Sauer (1993) also present evidence that team streaks affect closing point spreads in the U.S. basketball market; however, it is hard to know whether these hot-hand effects are real or caused by individual biases, since neither of the two hypotheses can be rejected in their data. Gray and Gray (1997) nd that NFL teams with good recent (distant) performance are less (more) likely to beat the spread than teams with poor performance, suggesting that bettors overreact to teams recent performance, while discounting their distant performance. 12 For example, Durham et al. (2005) interpret an increase (decrease) in the point spread following a short (long) streak as evidence that people are more likely to expect short streaks to continue and long streaks to reverse. However, given their nding that closing spreads are efcient, Asparouhova et al. (2009) point out that it is more likely that what they observe is the market correction of the opposite bias.
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The Sports Betting Market

Online sports betting is a large and fast-growing market with thousands of betting agencies operating around the world and wagers valued at billions of dollars each year. The organization of the market is similar to that of regular nancial markets. It is populated by a large number of participants who risk their capital on the uncertain outcome of future events and who have varying degrees of sophistication, e.g., some are noise traders and bet randomly, while others are professional arbitrageurs and try to exploit mispriced bets. In addition, information about sports teams and events is widely publicly available as is information about companies and stock prices, while sports handicappers are the analogue of nancial analysts. Finally, sports betting agencies are run by bookmakers who play the role of market makers in a nancial market. The bookmaker sets the price of a unit monetary payout for each possible outcome of each event. For example, an outcome with price 0.8 (quoted as having odds 1.25) implies that the bettor will make a prot of A C25 for each A C100 staked. The bookmaker sets prices so that he minimizes his risk and earns a commission. For instance, if at the current prices one of the outcomes in an event is heavily bet, the bookmaker increases its price to shift betting activity to the other outcomes so that the total payout to winners is the same regardless of the realized outcome.13 It is important to note that even though prices may shift over time, the payoff of each bet is determined by the prices prevailing at the time the bet was placed.14 The prices quoted by the bookmaker on all outcomes of an event also imply a probability with which each of these outcomes is expected to occur. If the bookmakers commission were zero, an outcome with price 0.8 would have a probability 80% of occurring. With a non-zero commission, e.g. 10%, the implied probability of an outcome with price 0.8 can be obtained by multiplying the price by the payout share to the bettor, i.e. 0.8 90% = 72%.15 If the implied probabilities do not accurately reect the true probabilities of match outcomes but rather bettors biased perceptions thereof, then a contrarian strategy of betting against popular opinion could possibly yield protable returns.
models of sportsbook pricing (e.g., Levitt, 2004) suggest that bookmakers may allow unbalanced betting to systematically exploit bettor biases and maximize prots. 14 This xed odds betting system differs from the parimutuel system in which winners split the total amount bet on the event, hence payoffs are not known until the betting pool has closed. 15 In a balanced book, the bookmakers commission can be easily computed from the amount by which the sum of prices over all outcomes of an event exceeds 1.
13 Alternative

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4.1

A Unique Individual-Level Data Set

Data Description

We use a unique panel data set of individual betting activity obtained from a large online sports betting company that operates in Europe. Our data contains detailed information about the betting histories of 500 randomly selected online gamblers over a period of 5 years, from October 2005 to November 2010. We focus on all bets placed by these individuals on the nal outcome of soccer matches, i.e., on a home team win, a draw, or an away team win. Our sample contains 119,343 such bets, which correspond to 45,654 unique soccer matches from over 100 competitions including most national leagues worldwide, as well as international competitions such as the World Cup and the UEFA European Championship.16 In particular, we observe the following information for each bet placed by each individual: i) bet date; ii) bet event (e.g., Premier League match between Manchester United and Liverpool); iii) outcome chosen (i.e., home win, draw or away win); iv) bet amount; iv) prices associated with all outcomes of bet event at the time the bet was placed; and vii) bet result.17 In addition, we have information about bettor characteristics, such as gender, date of birth, country of residence, and zip code of area of residence. Furthermore, we use several online sources to obtain a comprehensive list of all soccer matches that were available in the sportsbook under study during the years covered by our sample and the results of these matches.18 Finally, we have obtained zip code information about the location of each teams stadium. The historical match results are used to create measures of team past performance, and the team zip codes are used in conjunction with the individual zip codes to identify the teams that are domestic/local to each individual.
we choose to restrict our attention to standard bets in the soccer market, because this is the most active market segment with the highest transaction volume. 17 Note that bettors often combine bets to produce a wide array of payoffs and risk levels. Here, since our focus is to examine individual preferences towards specic team characteristics, we have extracted from combination bets all wagers placed on the nal outcome of soccer matches. Furthermore, note that in the case of combination bets the match result cannot always be backed out from the bet result. For example, observing that a bettor lost a combination bet that involves two individual wagers and pays money if both of them win, solely informs us that at least one of the wagers lost. Therefore, match results were obtained by merging bet events with publicly available match statistics. 18 The list of matches available through several bookmakers (including the bookmaker who has provided the data to us) and match results were obtained from the online archive www.football-data.co.uk for all major European leagues, and from www.oddsportal.com for all major and most minor soccer leagues worldwide.
16 Even though we have information about all types of bets placed on all sports,

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4.2

Variables of Interest

We consider three sources of investor sentiment, each of which has been documented in experiments and has a natural parallel in nancial markets. The rst set of sentiment variables relates to team past performance, and is designed to test whether trends in team performance sequences affect individual betting decisions. The second set of variables relates to team popularity, and is intended to examine whether individuals prefer to wager on attention-grabbing teams, e.g., teams that are ranked at the top of the world standings. In our third set of variables, we identify teams that are based in each individuals country (area) of residence, in order to test whether bettors exhibit a preference towards their domestic (local) teams. Analogous questions have been posed for stock investors: Do they choose securities based on past performance? Do they prefer stocks that catch their attention, such as those that are listed on major exchanges, are covered in the news and/or experience high trading volumes? Do they disproportionately tilt their portfolios towards domestic or local investments? Next, we describe our variables of interest in detail. First, for each match selected by individuals in our sample and for each participating team, we calculate the duration, i.e., the number of matches, of the current winning or losing streak of the team from the beginning of the season up to the most recent previous match.19 The Str eak variable is positive (negative) if the team is on a winning (losing) streak, it is not dened for the rst match of each team/season, and it is missing for teams lacking past performance information. The draw outcome is assumed to maintain (but not increase) a teams current streak.20 Furthermore, in order to allow for a separate effect of winning and losing streaks and for a possible non-monotonic effect of streak length on betting behavior, we construct four dummy variables that divide the observed performance sequences into those exhibiting short or long, and winning or losing streaks. In particular, Shor t W in ( LongW in ) is a dummy indicating bets on teams that are on a winning streak of at most (more than) 3 matches long, where the cutoff point for streak length is chosen to maximize the explanatory power of our regression models. Short losing streak ( Shor t Lose) and long losing streak ( LongLose) variables are dened analogously. Second, for each match selected by individuals in our sample and for each participating team,
do not consider performance measures that span more than one season because managerial and roster changes often occur across seasons; also individuals are unlikely to mentally extend streaks across seasons. 20 Alternative denitions of the streak variable in which the draw outcome is assumed to terminate or continue (i.e., increase) the teams existing streak yield similar results.
19 We

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we construct a number of variables that proxy for team popularity. Our measure of team popularity is based on team historical performance, under the assumption that more successful teams tend to be more popular and to attract the medias attention. We construct a team- and season-specic dummy variable, Popular T eam , that takes the value one if a team is ranked among the top 20 soccer clubs (top 5 national teams) according to the UEFA club coefcients (FIFA World Rankings) of the preceding season. In addition, we construct a match- and season-specic dummy variable Popular Match that equals one if a match involves a popular team.21 Third, we use information on individual and team location to identify the team(s) that are based on each individuals country and area of residence. For each team-individual combination,22 we construct the variable DomesticT eam that indicates whether the team is located in the individuals country of residence, and the variable LocalT eam that indicates whether the team is located in the individuals area of residence. We identify local teams by requiring that the rst x digits of the individual zip code match the rst x digits of the zip code of the teams stadium, where x is country-specic and is chosen so that it roughly corresponds to an area with radius of 100 kilometers. Furthermore, for each match-individual combination, we construct the variable DomesticMatch ( Local Match ) that indicates whether the match involves at least one team that is domestic (local) to the individual placing the bet. Finally, in order to control for possible team loyalty effects, for each team-individual combination we construct the variable Fa v oriteT eam that equals one for the team that has been backed most frequently by the individual.

4.3

Summary Statistics

Table 1 presents summary statistics for our data. Panel A presents the characteristics of the bets placed by individuals on the nal outcome of soccer matches, and Panel B presents the characteristics of the individuals. More than half of the bets that we observe back the home team to win
unreported results, we have also used three slightly different denitions of team popularity and the results remain unchanged. The rst is a team-specic dummy variable that is equal to one if a team belongs to the top 20 soccer clubs (top 5 national teams) of the decade 2000 2010 according to the team coefcients published by the International Federation of Football History and Statistics (IFFHS), the second is a team-specic dummy variable that is equal to one if a team belongs to the 20 most widely supported soccer clubs in the world based on the number of their fans according to a 2010 survey by German research company SPORT+MARKT, and the third is a team- and season-specic dummy variable that is equal to one for teams that are included in the contemporaneous list of the 20 highest net worth soccer clubs ranked by Forbes magazine each year. 22 We can identify domestic/local teams for all but 9 individuals who have missing location information.
21 In

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and are associated with relatively favorite prices; the mean (median) bet price is 2.21 (2). The vast majority (93%) of individuals in our sample is men; the mean (median) age is 33 (32), and 96% of the individuals reside in urban areas.23 The average bettor has placed A C2,825 on 238 wagers, and has actively participated in the sportsbook for a period of 7 months. On average, 14% of all bets back a popular team to win. In 8% (2%) of all bets the individual placing the bet has backed his domestic (local) team, and 2% of all bets back the team that is most-frequently-backed by the individual placing the bet. Panel C presents the characteristics of a comprehensive list of 86,895 soccer matches that took place during the years covered by our sample and were available to wager on through the bookmaker under study. The odds quoted by our bookmaker at the end of the betting period range from 1.01 to 67 with wagers backing the home team to win having on average the most favorite odds (2.42), followed by wagers backing the draw outcome (3.49), and then by wagers backing the away team to win (4.04); the bookmakers commission is on average 10% of the amount staked in a match. The length of team performance streaks ranges from 25 to 25 with almost half of the teams being on winning streaks and the other half on losing streaks. Finally, on average 2% of the teams available to back during our sample period are classied as popular teams.24

Composition of Individual versus Market Portfolio

In this section, we test whether individuals over-weigh/under-weigh teams with specic characteristics in their betting portfolios relative to a market portfolio consisting of the universe of teams available to wager on in the sportsbook at the time the portfolio was formed. Teams are rst divided into groups based on their streak length, popularity, and locality. Then, based on the price associated with them in the sportsbook, teams are further subdivided into four price groups labeled Str ong Fa v , Fa v , Long , and Str ongLong , where the price cutoffs correspond to the 5th percentile, the median and the 95th percentile of quoted prices (1.35, 2.5, and 7.5,
typical individual is not very different from a typical online broker investor. In a sample of 1,607 US individuals who switched from phone-based service and made online trades between 1991 and 1996, Barber and Odean (2002) nd that 86% of investors are men and that the mean (median) age is 49.6 (48) years. In a more recent sample of 3,079 German individuals holding online brokerage accounts between 1997 and 2001, Glaser (2003) nds that 95% of investors are men and that the mean (median) age is 40.8 (39) years. 24 Streak and popularity variables are not presented separately for home/away teams as they are the same.
23 Our

13

respectively). For each team group g , we compute the portfolio weight that individual n assigns to this group in month t as I ndi vngt := Bngt , g Bngt

where Bngt is the amount of money staked by individual n on team group g in month t . In addition, we compute the weight that team group g has in the market portfolio in month t as Mar ketgt := N gt , g N gt

where N gt is the number of available bets that back team group g in month t . Table 2 presents the average portfolio weights that individuals assign to the various team groups and compares them to the average proportions of the respective groups in the market. Panel A presents results for a two-way split of teams into groups by streak length and by price, Panel B presents results for a two-way split by popularity and by price, and Panel C presents results for a two-way split by locality (according to area as well as to country of residence) and by price. In all panels, columns labeled Indiv. report the cross-sectional average of the time-series average of I ndi vngt , and columns labeled Market report the time-series average of Mar ketgt .25 Columns labeled Ratio report the ratio of the respective individual and market portfolio weights; this ratio is our measure of the degree to which individuals exhibit a preference towards each team group. We nd that, on average, individuals allocate signicantly higher portfolio weights to teams that are on winning rather than on losing streaks, even though the two groups are available in roughly equal proportions in the market. In particular, 18% of the average individual portfolio is assigned to teams that are on long winning streaks, while these teams would make up only 8% of a portfolio constructed by picking bets at random; and approximately 3% of the average individual portfolio is assigned to teams that are on long losing streaks, while these teams constitute on average 7% of the market portfolio. Second, we nd that the average individual allocates 21% of his portfolio on popular teams; however, the proportion of popular teams in the market is only 2%. Third, we nd that individuals tend to place a disproportionately higher weight on their domestic and local teams; the average individual bets 15% (5%) of his portfolio on his domestic (local) teams, while the share of domestic (local) teams in the sportsbook is only 3% (0.6%). Thus, rela25 Individual

portfolio weights based on the number rather than the value of bets in individual portfolios are very

similar.

14

tive to the market, people seem to exhibit a pronounced preference toward teams that are on long winning streaks, popular teams, and domestic/local teams. A possible explanation for this behavior is that individuals prefer to back team groups that are usually associated with more or less favorite odds. We examine this possibility by comparing individual with market portfolio weights within the aforementioned four price groups: strong favorites, favorites, longshots, and strong longshots. Figure 1 presents four graphs, one for each of our sentiment variables performance streak, popularity, locality by area of residence, and locality by country of residence; each of the graphs plots how the ratio of individual to market portfolio weights reported on the corresponding sentiment variable varies within each price group.26 It is clear that even though individuals show a preference towards teams with shorter prices (i.e., favorites), it is also clear that, within all price groups, individuals show a preference towards winning relative to losing teams, towards popular relative to non-popular teams, and towards domestic (local) relative to foreign (remote) teams. Hence, individual preference toward specic team groups is not driven by their risk preferences.

Conditional Betting Decisions

As with stock buying decisions, the analysis of bet selection decisions is complicated by the fact that the choice set individuals face when selecting their bets is unobserved, and possibly very large, given the multitude of bets available in the sportsbook. To circumvent this problem, studies that analyze stock buying decisions condition their analysis on the observed transactions or portfolio holdings, and examine what determines whether a transaction is a buy or a sell (e.g., Grinblatt and Keloharju, 2001b), or what determines the weight that individuals assign to different stocks in their monthly portfolios (e.g., Kumar, 2009b). For the same reasons, in this section, we condition our analysis on the observed bets and examine whether team selection and portfolio weighting decisions are affected by our sentiment variables. Since our intent is to examine whether people are biased towards teams with specic characteristics, in this section we consider only bets placed on either the home team or the away team, ignoring wagers on a match being drawn.
26 We

note that this gure is essentially a visualization of the results presented in the columns labeled Ratio in

Table 2.

15

6.1

The Holding Decision

Here, we examine what drives the selection of bet outcomes, i.e., conditional on the decision to place a bet on a specic match, what determines which team is backed to win. We use the following linear probability model:27 Betnim = xim + nim , where Betnim takes value one if team i is backed by individual n in match m , and zero if team i is not backed by the individual in match m , and xim is a vector of this teams characteristics. The number of observations for each individual corresponds to the number of teams participating in the matches he has wagered on. The explanatory variables contain the price associated with team i , a dummy variable indicating whether team i is playing at home, and the difference between measures of past performance, popularity, and location for team i and its opponent in match m .28 In Table 3, we present the regression results for the effect of team streak, team popularity, and team locality on individuals bet choices. Specications 1 and 2 examine the relationship between team choice and team performance streaks; specication 1 assumes a linear effect for the streak, hence it is measured as the number (positive for winning and negative for losing) of matches of the current streak, while specication 2 assumes a categorical effect for the streak, hence it includes dummies indicating whether a team is on a long/short winning/losing streak. Specication 3 examines the effect of team popularity, while specications 4 and 5 examine whether individuals exhibit a preference towards domestic and local teams respectively. Specications 6 through 8 contain different combinations of the sentiment variables, and also include a dummy variable indicating the favorite, i.e., most-frequently-backed, team for each individual, to control for possible team loyalty effects. Controlling for prices, we nd that individuals are more likely to back teams that are on long winning streaks, popular teams and teams that are located in their country and area of residence. In particular, the probability of backing a team increases by 34% if the home team is on a long winning streak than if it is on a long losing streak; by 23% if the team is a popular rather than a non-popular team, and by 7% (9%) if the team is a domestic (local) rather than foreign (remote)
results we report in this section are qualitatively identical to those from a logit model. including separate variables for the home team and the away team rather than differences, we nd that the coefcients have similar magnitudes and opposite signs, indicating that the coefcient equality restrictions entailed in the use of differences as explanatory variables are justied.
28 When 27 All

16

team. The effect of local teams becomes smaller than that of domestic teams in specication 8 that includes both variables; this indicates that the effect of local teams is partially driven by international matches between a local and a foreign team.

6.2

The Portfolio Weighting Decision

Conditional on a given portfolio of bets, we now examine what determines the weight that individuals allocate to each bet in their monthly portfolios. We use the following model: Wn jt = xn jt + n jt , where Wn jt is the monetary weight that individual n assigns to wager j in his portfolio of month t , and xn jt is a vector of the individuals wager and portfolio characteristics. The explanatory variables include the price associated with the selected team, a dummy variable indicating whether the selected outcome backs the home team or the away team, and measures of team past performance, popularity, and location. To ensure that the portfolio weights are not mechanically affected by portfolio size, we also control for the number of bets in the portfolio of each individual each month. Furthermore, we include individual and monthly time xed effects. In Table 4, we present the regression results for the effect of team streak, team popularity, and team locality on individual portfolio weighting decisions. Specications 1 and 2 examine the relationship between portfolio weights and team streaks, specications 3 and 7 examine the effect of team popularity, and specications 4 and 8 (5 and 9) examine the effect of domestic (local) teams. Specications 6 and 10 contain different combinations of the sentiment variables, and as above also include a variable indicating the favorite team for each individual in order to control for possible team loyalty effects. Controlling for the price of the backed team, our main ndings are the following. First, portfolio weights are tilted towards teams that are on long winning streaks: wagers backing teams on long winning streaks have a 20% higher portfolio weight than wagers backing teams on long losing streaks.29 With respect to team popularity, even though the difference in the popularity dummies for the selected team and its opponent is signicantly positive (see specication 2), in unreported results we observe that when we include separate dummies for the two teams, the co29 We

note here that the median portfolio weight allocated to a wager is approximately 1%.

17

efcients on both are positive, suggesting that individuals assign higher portfolio weights on bets that involve rather than back popular teams. Since the coefcient restrictions entailed in the use of the popularity dummy difference as the explanatory variable are not satised, in specication 7 we include a match-specic variable that indicates whether a popular team is participating in the selected match. As expected, the coefcient on this variable is more positive and more signicant: wagers on matches involving at least one popular team have a 23% higher portfolio weight than wagers on matches involving no popular teams. With respect to team location, the difference in the locality dummies for the selected team and its opponent is positive but not signicant for domestic teams (see specication 3) and signicantly positive for local teams (see specication 4); however, as with popular teams, individuals appear to tilt their portfolios towards bets that involve rather than back their domestic and local teams. In specication 8 (9) we include a dummy that indicates whether a domestic (local) team is participating in the selected match, and we nd that wagers on matches involving at least one domestic (local) team have a 37% (52%) higher portfolio weight than wagers on matches involving no such teams. From these ndings, we conclude that our sentiment variables affect individuals portfolio weighting decision very strongly. Interestingly, and perhaps expectedly, individuals base their portfolio weighting decision more on the characteristics of the match as a whole, and less on the characteristics of the individual teams. Overall, our ndings on the effect of team streaks and team popularity are consistent with those of Avery and Chevalier (1999), who use aggregate level data on point spread movements in NFL games to conclude that the marginal bettor over-bets winning teams and prestigious teams. Durham et al. (2005), on the other hand, nd that point spread movements in the college football betting market suggest that the marginal bettor expects short streaks to continue and long streaks to reverse, contradicting the regime-shifting beliefs hypothesis employed by Barberis et al. (1998); we do not nd that the average bettor has a non-monotonic bias towards performance streaks. Studies that use individual trading data from brokerage rms also document that the average investor systematically relies on past stock performance, following either momentum or contrarian trading strategies (e.g., Grinblatt and Keloharju, 2001b; Grifn et al., 2003; Barber et al., 2009), that he prefers stocks that are in the news, that experience high trading volume and/or extreme previous days return (Barber and Odean, 2008; Seasholes and Wu, 2007), and that he disproportionately invests in local stocks 18

(e.g., Ivkovic and Weisbenner, 2005; Seasholes and Zhu, 2010; Feng and Seasholes, 2004).

Market Efciency

In this section, we examine whether market prices are efcient with respect to the asset characteristics that affect individuals betting choices. If we nd that wagers with characteristics that attract individuals e.g., wagers that back teams on long winning streaks or popular teams are under-priced, then we cannot rule out the possibility that at least some individuals consistently place such wagers because rationally they seek to exploit a mispricing. On the other hand, if we nd that wagers with such characteristics are priced efciently (or are overpriced), then there can be no rational prot motive, but rather individuals exhibit a (costly) behavioral bias. In the stock market, assets true fundamentals are unknown, so efciency tests are formulated indirectly in terms of the predictability of returns conditional on an assumed asset pricing model; hence, any test is a joint test of market efciency and the efcacy of the underlying asset pricing model. In contrast to this, in the betting market, the value of all assets is revealed with certainty at an exogenous termination point, hence a direct test of market efciency is possible. That is, one can examine whether prices incorporate all publicly available information by testing if, conditioning on its price, an assets characteristics can predict its terminal value. In particular, we can estimate the equation Outcome jm = 0 + 1 p jm + x jm + jm , where Outcome jm {0, 1} is the outcome of a wager backing team j in match m , p jm is the backed teams win probability implied by its price,30 and x jm is a vector of this wagers characteristics. Under market efciency, the coefcients 0 on the constant and 1 on the price should be 0 and 1 respectively, while the coefcient vector on asset characteristics should be 0. We test for the efciency of the betting market under study using a comprehensive list of 86,895 soccer matches that took place during the years covered by our sample and were available to wager on in the sportsbook. Table 5 presents the results from the aforementioned linear probability
the probability implied by the price is similar to including the price itself, but has the advantage that, under market efciency, the coefcient of the probability should be equal to 1 (to see this, note that the expectation of Outcome jm equals Pr Outcome jm = 1 ).
30 Including

19

model where the dependent variable is a dummy equaling one if a bet wins, and the explanatory variables include the backed teams win probability implied by its odds, a dummy variable indicating whether the backed team plays at home, and the measures of team past performance and popularity. The number of observations (173,790) corresponds to all teams participating in the 86,895 matches, i.e., for each match, we include in the analysis one observation for a wager backing the home team to win and one for a wager backing the away team to win; wagers backing the draw outcome are excluded, because our measures of past performance and popularity cannot be dened in such cases. Since we include in the analysis multiple observations for the same match, we cluster standard errors at the match level. First, we note that, while the greater-than-one coefcient on the implied probability reveals the oft-documented favorite-longshot inefciency in the quoted prices,31 this is a statistical rather than an economic inefciency (see Gray and Gray, 1997), since we nd that individuals cannot exploit it to make positive returns. But our main nding in Table 5 is that none of the sentiment variables contains information about match outcomes that is not reected in the quoted prices, hence the market under study seems to be efcient with respect to the variables of interest. Thus, we conclude that the average individuals preference towards wagers that back teams on long winning streaks and popular teams is not driven by a rational prot motive, but rather by a behavioral bias towards these characteristics. We note that the fact that the prevailing market prices are efcient with respect to the sentiment variables even though we nd that these sentiment variables affect individuals bet selection behavior, may seem somewhat puzzling under the usual and reasonable assumption that the bookmaker balances the book. It is important to remember that the prices reect the behavior of the marginal bettor; apparently in the market we are studying, the marginal participant does not suffer from the same behavioral biases as the average participant. This result highlights this distinction, hence the importance of examining individual betting choices rather than aggregate prices when we seek to study the behavior of the average individual.
31 The favorite-longshot price inefciency has been documented more consistently in parimutuel betting (e.g., Ali, 1977; also see Thaler and Ziemba, 1988, for a survey) and in xed-odds betting (e.g., Pope and Peel, 1989; Cain et al., 2000), while the evidence is mixed for point-spread betting (e.g., Woodland and Woodland, 1994).

20

Returns

Next, we conduct a further test of whether investor preference towards certain assets can be rationally justied as being driven by information reasons, or stems from a belief bias. Utilizing again the feature of wagering markets that assets terminal value is known, we can directly measure performance using realized returns, without the need to rely on an asset pricing model. In Table 6, we present the results of a linear regression model where the dependent variable is the net return realized on each bet placed by each individual, and the explanatory variables include the price associated with the selected team, a dummy variable indicating whether the selected outcome backs the home team or the away team, and the difference between measures of team past performance, popularity, and location for the selected team and its opponent. All specications also include individual and time xed effects. We nd that our sentiment variables are insignicant in all specications, suggesting that the returns individuals generate from backing their preferred team groups i.e., teams that are on longer streaks, popular teams, domestic teams, and local teams are not signicantly different from the returns they generate from backing teams outside these groups i.e., teams that are on shorter streaks, non-popular teams, foreign team,s and remote teams, respectively. Furthermore, individuals do not seem to earn signicantly different returns from wagering on matches that involve popular, domestic, and local teams than on matches that do not involve these team groups (specications 7 through 10). We now test whether individuals are on average able to generate signicantly positive returns from backing specic team groups. Table 7 presents the average return individuals realize from bets backing different team groups, where teams are divided into groups based on their past performance (Panel A), popularity (Panel B), and locality (Panel C), and further subdivided based on the price associated with them in the sportsbook (all panels). We nd that there is no team group for which the average realized return from betting is signicantly positive. Hence, we conrm again that the preference towards specic team groups that we found above is more likely rooted in behavioral biases rather than driven by information motives. Our nding that individual preference towards local teams is driven by simple familiarity rather than superior information might provide useful insights about the sources of local bias in the stock market. Ivkovic and Weisbenner (2005) have shown that individual investors earn superior re-

21

turns on their local stocks, hence their preference is driven by an informational advantage, while Seasholes and Zhu (2010) use the same dataset but improve the empirical methodology of Ivkovic and Weisbenner (2005) to nd that individual investors do not earn superior returns on their local stocks, supporting the familiarity hypothesis. Even though the results of this study cannot be directly extrapolated to regular nancial markets, given that individuals exhibit similar behavior in both settings, we believe it is reasonable that the sources of this behavior are also similar, supporting the nding of Seasholes and Zhu (2010).

Individual-Level Analysis

In this section, we take the analysis of individual behavior one step further by using individuallevel regressions to examine the prevalence of each sentiment bias in the cross-section. Mirroring our panel-regression analysis, we perform an individual-level analysis of the unconditional and conditional bet selection decisions, as well as of the conditional portfolio-weighting decision. We can summarize our results from these analyses along two dimensions. First, across the different analyses of the unconditional and conditional decisions, we nd quite consistently a more prevalent bias towards popular teams, domestic teams, and teams on a winning streak, and a less prevalent bias towards local teams. Second, we nd that these biases are much stronger in the unconditional analysis of the bet selection decision, less strong in the conditional analysis of the bet selection decision, and very weak (to the point of being essentially non-existent) in the conditional analysis of the portfolio weighting decision. In particular, the results on the conditional analysis of the portfolio weighting decision paint a markedly different picture than the corresponding results in the panel-regression analysis, where we nd that all biases are signicant, and illustrate the importance of performing this analysis at the individual level to understand the prevalence of these biases in the population. Below, we present in detail our results on these individual-level analyses. For the individual-level analysis of the unconditional bet selection decision, we test separately for each individual whether he over-weighs/under-weighs teams with specic characteristics in his betting portfolio relative to a market portfolio consisting of the universe of teams available to wager on in the sportsbook at the time the portfolio was formed. That is, we rst divide teams into groups based on their past performance streak, their popularity, and their locality (relative to each 22

individual); then for each individual we compare the mean across all weeks during which the individual was active portfolio weight he places on each team group with the mean proportion of bets contemporaneously available in the sportsbook that backs this team group. In this analysis, we include individuals with at least 10 observations, and we use weekly portfolios as the unit of observation to conserve our sample as much as possible.32 We also apply the False Discovery Rate correction to the p -values of the individual tests to control for the problem of false discoveries in multiple testing (see Storey, 2002; Barras et al., 2010). In Table 8, we report the results of this analysis, i.e., the proportion of individuals who overweigh and the proportion of individuals who signicantly (at the 5% level) over-weigh teams with specic characteristics relative to the market portfolio. Panel A presents results on the representativeness bias. We nd that the vast majority of individuals follows momentum betting strategies by systematically backing teams that are on long winning streaks and avoiding teams that are on long losing streaks: 91% (39%) of the individuals (signicantly) over-weigh teams that are on long winning streaks, and 93% (69%) of the individuals (signicantly) under-weigh teams that are on long losing streaks. Similar, but less prevalent, behavior is also observed for short winning and short losing streaks, respectively. Panel B of the table shows that the vast majority of individuals exhibit a bias towards popular teams, consistent with the idea that due to limited attention individuals choose attention-grabbing alternatives: 99% (86%) of the individuals (signicantly) over-weigh popular teams in their portfolio relative to the market. Panel C presents results on the familiarity bias. We nd that the vast majority of individuals exhibit a preference towards domestic teams as 92% (49%) of individuals (signicantly) over-weigh teams located in their country of residence, while a smaller majority exhibits a preference towards local teams as 75% (24%) of individuals (signicantly) over-weigh teams located in their area of residence. For the individual-level analysis of the bet selection decision conditional on the observed match selections, we perform individual-level OLS regressions of the decision whether to back a team or not on measures of team past performance, team popularity, team locality, and controls (see Section 6.1 for the corresponding panel-regression analysis).33 In Table 9, we report the results of this
weekly portfolios as the unit of observation, we can use approximately half of our initial sample of 500 individuals in this analysis. Using monthly portfolios as the unit of observation and retaining the lter of using individuals with at least 10 observations, we can use approximately a quarter of our initial sample, but the results are essentially unchanged. 33 In this analysis, we use individuals with at least 30 bets, which means that we can use approximately 80% of the
32 Using

23

analysis, i.e., the proportion of individuals for whom the coefcient of the respective variable is positive/negative and signicantly (at the 5% level) positive/negative. We nd that 93% (59%) of the individuals are (signicantly) more likely to back a team the longer its winning streak length; 86% (48%) of individuals are (signicantly) more likely to back a popular team than its opponent; 64% (30%) of individuals are (signicantly) more likely to back a domestic team versus a nondomestic team; while 64% (24%) of individuals are more likely to back a local team versus a nonlocal team. We note that a substantial proportion of individuals seems to be exhibiting the reverse biases: 7% of individuals are more likely to back a team the longer its losing streak length, 14% of individuals are more likely to back a non-popular team, 36% of individuals are more likely to back a non-domestic team and 36% of individuals are more likely to back a non-local team. Importantly, the proportional of individuals that exhibit biases for performance streaks and team popularity signicantly are much larger than the proportion that exhibit the reverse biases signicantly (59% exhibit a winning streak bias vs. 2% exhibit a losing streak bias, and 48% exhibit a bias towards popular teams vs. 2% exhibit a bias towards non-popular teams), which indicates that these biases are very prevalent even in the conditional bet selection decision. On the other hand, the proportion of individuals that exhibit a bias for domestic and local teams signicantly is much closer to the proportion of individuals that exhibit the reverse biases signicantly (30% exhibit a domestic bias vs. 17% exhibit the opposite bias, and 24% exhibit a local bias vs. 12% exhibit the opposite bias), which indicates that these biases are not quite as prevalent in the conditional bet selection decision. For the individual-level analysis of the portfolio weighting decision conditional on the selected portfolio, we perform individual-level OLS regressions of the monetary weight assigned by each individual to each bet in his monthly portfolio on measures of team past performance, team popularity, team locality, and controls (see Section 6.2 for the corresponding panel-regression analysis).34 In Table 10, we report the results of this analysis, i.e., the proportion of individuals for whom the coefcient of the respective variable is positive/negative and signicantly (at the 5% level) positive/negative. Across the board, we nd that behavioral biases are much less prevalent than in the conditional bet selection decision, to the point that the biases towards teams on winning
500 individuals in our sample. Using individuals with at least 60 bets reduces the proportion of individuals we can use, but does not change our results. 34 As in the previous analysis, here we use individuals with at least 30 bets; our results are unchanged when we use individuals with at least 60 bets.

24

streams, domestic teams, and local teams effectively disappear, with roughly half of the individuals exhibiting the reverse biases, and with a very small proportion of individuals exhibiting a signicant bias in either direction.

10

Behavioral Biases and Individual Characteristics

In this section, we examine the relationship between behavioral biases and individual characteristics. Table 11 presents correlations among individual characteristics and individual-specic measures of the bias towards local teams, domestic teams, popular teams, and teams that are on long winning streaks. All biases are proxied by the ratio of individual to market portfolio weights allocated to the respective team group, i.e., the mean (across all months) portfolio weight each individual places on the respective team group divided by the mean proportion of bets contemporaneously available in the sportsbook that back this team group. The individual characteristics include demographic characteristics, such as gender, age, and residential area, and bet characteristics, such as the size and value of individual monthly portfolios and the mean net return realized by each individual. Few statistically signicant correlations are evident. As expected, we nd that a larger number of bets in individual portfolios translates into lower portfolio weights on popular, local, and domestic teams. Furthermore, we nd that older individuals place a signicantly larger number and higher value of bets than younger individuals, and are less likely to be attracted by popular teams in their betting decisions.

11

Conclusion

In this paper, we have used a unique panel dataset of individual activity in a soccer wagering market, to study the extent to which individuals betting behavior is affected by biases such as the representativeness bias, the limited-attention bias, and the home/local bias. The study of this alternative market enables us to test whether the documented biases are stable across markets, and to better disentangle rational versus behavioral explanations of observed behavior through direct tests of market efciency and portfolio performance. In addition, our long panel dataset renders an individual-level analysis of behavior possible, hence enables us to study the prevalence of these 25

biases in the cross-section. We nd that participants in the soccer wagering market adhere to the same heuristics as investors in the stock market, as patterns in team past performance, team popularity, and team location signicantly affect individual bet selection and portfolio weighting decisions. Furthermore, we nd that none of the sentiment variables contains information about match outcomes that is not reected in the quoted prices, and that individuals do not earn signicantly higher returns from betting on teams on long winning streaks, on popular teams, or on domestic/local teams. This evidence indicates that the observed behavior is not driven by superior information but rather by sentiment, and could provide useful insights about the sources of analogous biases in the stock market, where tests of efciency and superior performance are not as clean. The individual-level analysis shows that the local bias is less evident across individuals relative to the other biases, and that while these biases affect most individuals bet selection decision, they are not prevalent across individuals in the portfolio weighting decision.

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28

Table 1: Summary Statistics

This table presents summary statistics for our data. Panel A presents the characteristics of 119,343 bets placed by 500 individuals on the nal outcome of soccer matches. Home, Away, and Draw are dummies indicating the selected outcome; Price is the price -expressed as decimal odds- associated with the selected outcome; and Streak is the duration -the number of matches- of the current winning or losing streak of the team backed by the bettor; it is positive (negative) if the selected team is on a winning (losing) streak, it is not dened for bets backing the draw outcome and for the rst match of each team/season, and it is missing for teams with no past performance information. The draw outcome is assumed to maintain a teams current streak. PopularTeam (PopularMatch) is a dummy indicating bets that back (involve) teams that are highly ranked according to the annual team coefcients of the previous season. DomesticTeam (LocalTeam) is a dummy indicating bets that back teams located in the bettors country (area) of residence, and DomesticMatch (LocalMatch) indicates bets on matches involving such teams; these variables are missing for individuals with no location information. For each individual, FavoriteTeam indicates his bets that back his most-frequently-backed team. Number of bets (Value of bets) is the number (value) of bets placed per individual, averaged across individuals. Number of bet months is the number of months during which an individual places at least one bet, averaged across individuals. Panel B presents the characteristics of individuals in our sample. Female and Rural are dummies indicating gender and residential area. Age is in years. Panel C presents the characteristics of 86,895 soccer matches available to bet in the sportsbook during our sample period. Commission is the bookmakers commission, and Price, Streak, and PopularTeam are dened as above.
Panel A: Characteristics of bets placed N Home Away Draw Price Streak PopularTeam PopularMatch LocalTeam LocalMatch DomesticTeam DomesticMatch FavoriteTeam Number of bets Value of bets Number of bet months 119,343 119,343 119,343 119,343 68,145 119,343 119,343 117,589 117,589 117,589 117,589 119,343 Mean 0.57 0.27 0.16 2.21 1.18 0.14 0.19 0.02 0.04 0.08 0.11 0.02 238.21 2,825 7.29 Median 1 0 0 2 1 0 0 0 0 0 0 0 125 606 5 Std. Dev. 0.49 0.45 0.36 1.46 3.08 0.35 0.39 0.15 0.20 0.27 0.31 0.15 335.23 8,669 7.06 Min 0 0 0 1.01 -20 0 0 0 0 0 0 0 6 9.52 1 Max 1 1 1 67 25 1 1 1 1 1 1 1 2,652 129,413 56

Panel B: Characteristics of bettors N Female Age Rural 500 500 500 Mean 0.07 32.95 0.04 Median 0 32 0 Std. Dev. 0.25 9.43 0.20 Min 0 18 0 Max 1 67 1

Panel C: Characteristics of bets available in sportsbook N Commission Price (All outcomes) HomePrice AwayPrice DrawPrice Streak PopularTeam 86,895 260,685 86,895 86,895 86,895 156,336 173,790 Mean 0.10 3.32 2.42 4.04 3.4929 0.15 0.02 Median 0.10 3.10 2.05 3.30 3.25 1 0 Std. Dev. 0.01 1.96 1.71 2.57 0.79 2.83 0.14 Min 0.02 1.01 1.01 1.01 1.18 -25 0 Max 0.60 67 53.50 67 14 25 1

Table 2: Composition of Individual and Market Portfolio by Odds Group and Team Characteristics
This table shows the weights that individuals assign to various team groups in their betting portfolios and the weight of the respective groups in the market portfolio. Teams are divided into groups based on their past performance (Panel A), popularity (Panel B), locality (Panel C), and further subdivided into groups based on the price associated with them in the sportsbook (all panels). Columns labeled Indiv. report the average across individuals of the time-series average of the shares of monthly portfolio value wagered by each individual on each team group. Columns labeled Market report the time-series average of the proportion of all bets available in the sportsbook each month that involve this team group. Columns labeled Ratio report the ratio of the individual and the market portfolio weights, which measures the degree to which individuals overweigh/underweigh the respective team groups relative to the market. Teams are on a short (long) winning/losing streak if they are on a winning/losing streak that is at most (more than) 3 matches long. A team is dened as popular if it is highly ranked according to the annual team coefcients of the previous season. StrongFav, Fav, Long, and StrongLong indicate prices shorter than 1.35 (the 5th percentile), between 1.35 and 2.5 (the 50th percentile), between 2.5 and 7.5 (the 95th percentile), and longer than 7.5, respectively. A team is dened as local (domestic) if it is based in the individuals area (country) of residence.
Panel A: Team Past Performance Streaks StrongFav Indiv. Market 0.03% 1.27% 2.36% 1.13% Ratio 1.70 2.96 2.92 3.95 Indiv. 2.06% 23.68% 32.95% 12.07% Fav Market 1.83% 17.25% 18.92% 4.80% Ratio 1.12 1.37 1.74 2.52 Indiv. 0.53% 4.72% 6.51% 1.54% Long Market 4.27% 19.45% 21.30% 2.32% Ratio 0.12 0.24 0.31 0.66 Indiv. 0.09% 0.30% 0.38% 0.02% StrongLong Market 0.85% 2.07% 2.06% 0.10% Ratio 0.10 0.14 0.18 0.21 Indiv. 2.7% 32.4% 46.7% 18.1% Total Market 7.0% 40.0% 44.6% 8.3% Ratio 0.39 0.81 1.05 2.17

30

LongLose ShortLose ShortWin LongWin

0.06% 3.74% 6.91% 4.46%

Panel B: Team Popularity StrongFav Indiv. Non Popular Popular 9.42% 4.87% Market 4.76% 0.46% Ratio 1.98 10.57 Indiv. 56.21% 14.38% Fav Market 41.32% 1.25% Ratio 1.36 11.54 Indiv. 12.38% 1.71% Long Market 46.30% 0.54% Ratio 0.27 3.18 Indiv. 1.00% 0.02% StrongLong Market 5.34% 0.03% Ratio 0.19 0.92 Indiv. 79.0% 21.0% Total Market 97.7% 2.3% Ratio 0.81 9.24

Panel C: Team Location StrongFav Indiv. Remote Local Foreign Domestic 13.05% 1.13% 11.7% 2.52% Market 5.15% 0.07% 8.14% 0.42% Ratio 2.53 15.45 1.43 6.03 Indiv. 67.44% 3.14% 61.8% 8.84% Fav Market 42.31% 0.25% 62.93% 1.64% Ratio 1.59 12.53 0.98 5.38 Indiv. 13.35% 0.85% 11.2% 2.96% Long Market 46.59% 0.26% 24.33% 0.70% Ratio 0.29 3.32 0.46 4.22 Indiv. 0.90% 0.14% 0.8% 0.24% StrongLong Market 5.32% 0.05% 1.77% 0.06% Ratio 0.17 3.00 0.45 4.00 Indiv. 94.7% 5.3% 85.4% 14.6% Total Market 99.4% 0.6% 97.2% 2.8% Ratio 0.95 8.39 0.88 5.16

14 12

3
10

ID/Market

StrongFavorite Favorite 2 Longshot StrongLongshot Total 1

StrongFavorite

ID/Market

8 6 4 2

Favorite Longshot StrongLongshot Total

LongLose ShortLose ShortWin LongWin

Nonpopular Popular

(a) Team Performance Streaks

18 16
6 7

(b) Team Popularity

14

ID/Market

12 10 8 6 4 2 Remote Local

StrongFavorite

ID/Market

StrongFavorite 4 3 2 1 Foreign Domestic Favorite Longshot StrongLongshot Total

Favorite Longshot StrongLongshot Total

(c) Team Location (by Area)

(d) Team Location (by Country)

Figure 1: Individual versus Market Portfolio Weights by Team Characteristics

31

Table 3: Bet Selection Decision

This table presents the results from a linear probability model where the dependent variable is a dummy that takes the value one if a team is backed, and zero if a team is not backed by the individual placing a bet on a given match. Wagers backing the draw outcome are excluded. The number of observations for each individual corresponds to the number of teams participating in the matches he has wagered on. The explanatory variables include the price associated with the team, a dummy variable indicating whether the team is playing at home, and the difference (denoted by ) between measures of past performance, popularity, and location for the team and its opponent in the match. Streak is the duration -the number of matches- of the current winning or losing streak of the team; it is positive (negative) if the team is on a winning (losing) streak, it is not dened for the rst match of each team/season, and it is missing for teams with no past performance information. The draw outcome is assumed to maintain a teams current streak. ShortWin/ShortLose (LongWin/LongLose) is a dummy indicating teams that are on a winning/losing streak of at most (more than) 3 matches long. PopularTeam is a dummy indicating teams that are highly ranked according to the annual team coefcients of the previous season. DomesticTeam (LocalTeam) is a dummy indicating teams located in the bettors country (area) of residence; these variables are missing for individuals with no location information. FavoriteTeam indicates the team that is most frequently backed by the individual placing the bet. t statistics using standard errors clustered at the match level are reported below the coefcients. / / indicate signicance at the 10%/5%/1% levels.
(1) Constant Price Home Streak ShortWin ShortLose LongLose PopularTeam DomesticTeam LocalTeam FavoriteTeam 0.619 42.266 -0.064 -20.349 0.223 25.655 0.027 32.566 (2) 0.629 42.689 -0.066 -20.956 0.219 24.977 (3) 0.566 7.433 -0.053 -3.153 0.237 6.557 (4) 0.606 7.303 -0.061 -3.387 0.219 5.502 (5) 0.604 7.307 -0.061 -3.382 0.219 5.539 (6) 0.592 42.273 -0.058 -19.254 0.233 28.105 (7) 0.590 42.276 -0.057 -19.191 0.235 28.374 (8) 0.585 42.38 -0.056 -19.00 0.236 28.91

-0.145 -23.072 -0.216 -29.264 -0.340 -31.692 0.230 6.664 0.072 4.431 0.089 6.041

-0.138 -22.736 -0.208 -30.517 -0.332 -33.899 0.161 19.616 0.137 5.176

-0.138 -22.725 -0.207 -30.552 -0.332 -34.012 0.161 19.619

0.081 7.435

-0.135 -22.71 -0.204 -30.65 -0.329 -34.17 0.155 19.24 0.101 3.90 0.054 5.05 0.197 23.90 134,110 38.87%

Number of Obs Adjusted R 2

136,290 37.13%

136,290 36.78%

201,902 29.56%

198,932 26.04%

198,932 26.10%

134,110 38.36%

134,110 38.35%

32

Table 4: Portfolio Weighting Decision

This table presents the results from an OLS model where the dependent variable is the monetary weight assigned by each individual to each bet in his monthly portfolio. Wagers backing the draw outcome are excluded. The explanatory variables include the price associated with the selected team, a dummy variable indicating whether the selected outcome backs the home team or the away team, and the difference (denoted by ) between measures of team past performance, popularity, and location for the selected team and its opponent. Streak is the duration -the number of matches- of the current

winning or losing streak of the team backed by the bettor; it is positive (negative) if the selected team is on a winning (losing) streak, it is not dened for the rst match of each team/season, and is missing for teams with no past performance information. The draw outcome is assumed to maintain a teams current streak. ShortWin/ShortLose (LongWin/LongLose) is a dummy indicating bets on teams that are on a winning/losing streak of at most (more than) 3 matches long. PopularTeam (PopularMatch) is a dummy indicating bets that back (involve) teams that are highly ranked according to the annual team coefcients of the previous season. DomesticTeam (LocalTeam) is a dummy indicating bets that back teams located in the bettors country (area) of residence, and DomesticMatch (LocalMatch) indicates bets on matches involving such teams; these variables are missing for individuals with no location information. FavoriteTeam indicates bets that back the team that is most frequently backed by the individual placing the bet. NumBets is the inverse of the number of bets in the monthly portfolio of the individual. All specications include individual and time xed effects. t statistics using standard errors clustered at the match level are reported below the coefcients. / / indicate signicance at the 10%/5%/1% levels. (1) Constant Price Home Streak ShortWin ShortLose LongLose PopularTeam DomesticTeam LocalTeam PopularMatch DomesticMatch LocalMatch FavoriteTeam NumBets Number of Obs Adjusted R 2 1.011 112.372 68,029 75.20% 1.011 112.367 68,029 75.20% 1.003 195.850 100,905 79.62% 1.003 192.989 99,420 79.46% 1.003 193.042 99,420 79.46% 0.007 6.913 1.010 110.243 66,943 75.04% 0.002 1.116 -0.002 -4.204 0.001 3.481 0.000 5.119 (2) 0.002 1.231 -0.002 -4.335 0.001 3.285 -0.001 -4.211 -0.002 -5.042 -0.002 -4.059 0.002 6.403 0.000 0.124 0.002 2.010 (3) -0.005 -0.245 -0.001 -3.288 0.001 5.409 (4) -0.004 -0.202 -0.001 -3.358 0.001 4.561 (5) -0.004 -0.224 -0.001 -3.359 0.001 4.622 (6) 0.000 0.065 -0.001 -3.510 0.002 4.555 -0.001 -3.925 -0.002 -4.771 -0.002 -3.993 0.002 5.920 -0.001 -0.392 0.002 1.822 0.002 7.882 0.004 7.607 0.005 5.660 1.003 195.665 100,905 79.62% 1.003 193.339 99,420 79.48% 1.003 193.288 99,420 79.47% (7) -0.005 -0.242 -0.001 -3.385 0.001 5.153 (8) -0.006 -0.283 -0.001 -3.354 0.001 4.716 (9) -0.005 -0.257 -0.001 -3.357 0.001 4.682 (10) -0.000 -0.274 -0.001 -4.090 0.002 4.406 -0.001 -4.083 -0.002 -4.929 -0.002 -4.305

33

0.003 8.408 0.002 3.467 0.005 3.919 0.006 6.123 1.009 110.310 66,943 75.08%

Table 5: Market Efciency

This table presents the results from a linear probability model where the dependent variable is a dummy equaling one if a bet wins. The N = 173,790 observations correspond to the teams participating in 86,895 matches that were available to wager on in the sportsbook over our sample period. Wagers backing the draw outcome are excluded. Home is a dummy indicating that the bet backs the home team to win; prob_win is the backed teams win probability implied by its odds. Streak is the duration -the number of matchesof the current winning or losing streak of the team backed by the bettor; it is positive (negative) if the selected team is on a winning (losing) streak, it is not dened for the rst match of each team/season, and is missing for teams with no past performance information. ShortWin/ShortLose (LongWin/LongLose) is a dummy indicating bets on teams that are on a winning/losing streak of at most (more than) 3 matches long. PopularTeam is a dummy indicating bets that back teams that are highly ranked according to the annual team coefcients of the previous season. Differences in the respective variables between the backed team and its opponent are denoted by . t statistics using standard errors clustered at the match level are reported below the coefcients. / / indicate signicance at the 10%/5%/1% levels. (1) Constant prob_win Home Streak ShortWin ShortLose LongLose PopularTeam -0.039 -12.258 1.126 101.931 0.001 0.174 -0.001 -1.307 0.000 0.058 -0.000 -0.074 0.009 1.518 0.004 0.563 Number of Obs 152,384 Adjusted R
2

(2) -0.039 -12.449 1.124 104.572 0.001 0.328

(3) -0.036 -13.730 1.129 132.927 -0.002 -0.602

(4) -0.039 -11.936 1.125 99.663 0.001 0.205 -0.001 -1.303

(5) -0.039 -12.120 1.124 102.156 0.001 0.354

0.000 0.061 -0.000 -0.072 0.009 1.515 0.002 0.314 152,384 13.83% 0.002 0.273 152,384 13.83%

152,384 13.83%

173,790 14.66%

13.83%

34

Table 6: Realized Return

This table presents results from an OLS regression where the dependent variable is the net return realized by each bet placed by individuals in our sample. Wagers backing the draw outcome are excluded. The explanatory variables include the price associated with the selected team, a dummy variable indicating whether the selected outcome backs the home team or the away team, and the difference (denoted by ) between measures of team past performance, popularity, and location for the selected team and its opponent. Streak is the duration -the number of matches- of the current winning or losing streak

of the team backed by the bettor; it is positive (negative) if the selected team is on a winning (losing) streak, it is not dened for the rst match of each team/season, and is missing for teams with no past performance information. The draw outcome is assumed to maintain a teams current streak. ShortWin/ShortLose (LongWin/LongLose) is a dummy indicating bets on teams that are on a winning/losing streak of at most (more than) 3 matches long. PopularTeam (PopularMatch) is a dummy indicating bets that back (involve) teams that are highly ranked according to the annual team coefcients of the previous season. DomesticTeam (LocalTeam) is a dummy indicating bets that back teams located in the bettors country (area) of residence, and DomesticMatch (LocalMatch) indicates bets on matches involving such teams; these variables are missing for individuals with no location information. FavoriteTeam indicates bets that back the team that is most frequently backed by the individual placing the bet. All specications include individual and time xed effects. t statistics using standard errors clustered at the match level are reported below the coefcients. / / indicate signicance at the 10%/5%/1% levels. (1) Constant Price 0.087 0.551 -0.014 -0.887 -0.015 -0.805 -0.001 -0.266 (2) 0.080 0.505 -0.013 -0.830 -0.010 -0.543 (3) 0.085 0.543 -0.008 -0.524 -0.020 -1.119 (4 ) 0.077 0.493 -0.007 -0.465 -0.018 -1.045 (5) 0.075 0.479 -0.006 -0.395 -0.017 -0.998 (6) 0.085 0.536 -0.014 -0.920 -0.013 -0.681 (7) 0.073 0.468 -0.006 -0.412 -0.016 -0.934 (8) 0.074 0.474 -0.006 -0.408 -0.017 -1.000 (9) 0.074 0.476 -0.006 -0.409 -0.017 -0.996 (10) 0.076 0.477 -0.012 -0.786 -0.010 -0.506

35

Home Streak ShortWin ShortLose LongLose PopularTeam DomesticTeam LocalTeam PopularMatch DomesticMatch LocalMatch FavoriteTeam Number of Obs Adjusted R 2

-0.002 -0.100 -0.023 -1.126 0.028 0.978 -0.019 -0.853 0.103 0.689 0.004 0.116

-0.003 -0.145 -0.024 -1.175 0.030 1.072 -0.013 -0.568 0.100 0.595 -0.017 -0.580 0.007 0.409 0.005 0.191 0.022 0.725 0.031 1.086

-0.002 -0.114 -0.023 -1.137 0.030 1.075

0.008 0.403 -0.019 -0.598 0.035 1.070 0.030 0.938 66,943 0.19%

68,029 0.15%

68,029 0.18%

73,660 0.17%

72,520 0.18%

72,520 0.16%

66,943 0.20%

73,660 0.16%

72,520 0.16%

72,520 0.16%

Table 7: Average Realized Return by Odds Group and Team Characteristics

This table presents the average net return realized by individuals in our sample from betting on different team groups. Teams are divided into groups based on their past performance (Panel A), popularity (Panel B), locality (Panel C), and further subdivided into groups based on the price associated with them in the sportsbook (all panels). Teams are on a short (long) winning/losing streak if they are on a winning/losing streak that is at most (more than) 3 matches long. A team is dened as popular if it is highly ranked according to the annual team coefcients of the previous season. StrongFav, Fav, Long, and StrongLong indicate prices shorter than 1.35 (the 5th percentile), between 1.35 and 2.5 (the 50th percentile), between 2.5 and 7.5 (the 95th percentile), and longer than 7.5, respectively. A team is dened as local (domestic) if it is based in the individuals area (country) of residence. t statistics using standard errors clustered at the match level are reported next to the estimates. / / indicate signicance at the 10%/5%/1% levels.
Panel A: Team Past Performance Streaks LongLose N Return t-stat N ShortLose Return t-stat -0.41 -3.49 -2.03 -3.68 -4.35 N 3,607 23,582 3,892 142 31,223 ShortWin Return -7.18% -2.62% -0.25% -5.99% -2.80% t-stat -3.25 -2.16 -0.07 -0.09 -2.67 N LongWin Return t-stat

StrongFav 25 3.00% 0.26 Fav 1,605 1.78% 0.41 Long 500 -6.45% -0.77 StrongLong 37 -100.00% -1016 Total 2,167 -1.63% -0.44

1,791 -1.12% 18,221 -4.62% 2,914 -7.93% 157 -57.63% 23,083 -5.00%

2,199 -0.02% -0.01 8,683 -3.15% -1.55 776 -2.06% -0.25 14 -100.00% -1016 11,672 -2.63% -1.58

36

Panel B: Team Popularity Non-Popular N StrongFav 5,633 Fav 46,804 Long 8,037 StrongLong 362 Total 60,836 Return t-stat N Popular Return t-stat -2.99 -4.22 -1.01 -0.27 -1.98

-4.49% -1.46 -3.41% -1.20 -2.42% -1.16 -8.88% 1015 -3.41% -4.92

2,983 -3.62% 9,200 -2.83% 709 -10.57% 22 -100% 12,914 -3.60%

Panel C: Team Location Remote N Return -4.08% -3.30% t-stat -3.04 -4.25 -1.38 -1.78 -5.52 N Local Return t-stat 0.51 -1.59 -0.08 1.52 -0.33 N Foreign Return -4.35% -3.22% t-stat N Domestic Return t-stat 0.08 -1.62 -1.07 1.26 -0.95

StrongFav 8,040 Fav 53,930 Long 8,361 -3.26% StrongLong 341 -41.34% Total 70,672

422 1.92% 1,197 -7.73% 280 -0.99% 34 176.47% 1,933 -1.37%

7,440 -3.10 50,889 -4.06 7,497 -2.43% -0.99 254 -82.87% -10.60 66,080 -3.50% -5.40

1,022 0.31% 4,238 -5.48% 1,144 -8.11% 121 107.02% 6,525 -2.86%

-3.50%

Table 8: Classication of Bettors - Individual versus Market Portfolio Weights

This table presents the proportion of individuals for whom the difference between the weight that they assign to each team group in their betting portfolios and the weight of the respective team group in the market portfolio is positive/negative and signicantly positive/negative at the 5% level (in parentheses). For each individual, we compare the fraction of portfolio value wagered on each team group each week with the proportion of all bets available in the sportsbook that back this team group this week. Results are based on individuals with at least 10 weeks of betting activity. Teams are on a short (long) winning/losing streak if they have won/lost at most (more than) 3 consecutive matches in the current season, up to the most recent previous match. A team is dened as popular if it is highly ranked in the season according to the annual team coefcients. A team is dened as local (domestic) if it is based in the individuals area (country) of residence. The False Discovery Rate (FDR) correction is applied to the p -values of the individual tests to control for the problem of false discoveries in multiple testing.
Panel A: Performance Streak Positive (%) LongLose 7.27 (0.00) 20.45 (0.45) 64.55 (6.82) 91.36 (39.09) 220 Negative (%) 92.73 (69.09) 79.55 (31.82) 35.45 (0.91) 8.64 (0.91) 220

ShortLose

ShortWin

LongWin

# of Individuals

Panel B: Team Popularity Positive (%) Popular 99.09 (85.91) 220 Negative (%) 0.91 (0.45) 220

# of Individuals

Panel C: Team Locality Positive (%) Local Team 75.00 (24.06) 92.02 (49.30) 213 Negative (%) 25.00 (17.92) 7.98 (2.82) 213

Domestic Team

# of Individuals

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Table 9: Classication of Bettors - Bet Selection Decision

This table presents aggregated results from individual-level linear probability models where the dependent variable is a dummy that takes the value one if a team is backed, and zero if a team is not backed by the individual placing a bet on a given match. Wagers backing the draw outcome are excluded. The number of observations for each individual corresponds to the number of teams participating in the matches he has wagered on. The explanatory variables include the price associated with the team, a dummy variable indicating whether the team is playing at home, and the difference (denoted by ) between measures of past performance, popularity, and location for the team and its opponent in the match. The numbers in the table correspond to the proportion of individuals for whom the coefcient of the respective variable is positive/negative and signicantly positive/negative at the 5% level (in parentheses). Results are based on individuals with at least 30 observations. Streak is the duration -the number of matches- of the current winning or losing streak of the team; it is positive (negative) if the team is on a winning (losing) streak, it is not dened for the rst match of each team/season, and it is missing for teams with no past performance information. The draw outcome is assumed to maintain a teams current streak. PopularTeam is a dummy indicating teams that are highly ranked according to the annual team coefcients of the previous season. DomesticTeam (LocalTeam) is a dummy indicating teams located in the bettors country (area) of residence; these variables are missing for individuals with no location information. FavoriteTeam indicates the team that is most frequently backed by the individual placing the bet. Standard errors are clustered at the match level. The False Discovery Rate (FDR) correction is applied to the p -values of the individual tests to control for the problem of false discoveries in multiple testing.

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(1) Pos (%) Neg (%) Pos (%) (2) Neg (%) Pos (%) (3) Neg (%) Pos (%) (4) Neg (%) Pos (%) (5) Neg (%) Streak 92.82 (58.85) PopularTeam 7.18 (1.67) 86.16 (47.77) DomesticTeam 13.84 (1.79) 63.66 (29.51) 36.34 (16.94) 64.46 (23.80) FavoriteTeam 35.54 (12.05) 94.71 (67.65) 94.12 (48.24) 66.47 (37.65) 62.35 (27.06) 87.65 (50.00) # of Individuals 418 418 448 448 366 366 332 332 170 5.29 (1.18) 5.88 (0.00) 33.53 (11.18) 37.65 (9.41) 12.35 (1.18) 170 LocalTeam

Table 10: Classication of Bettors - Portfolio Weighting Decision

This table presents aggregated results from individual-level OLS regressions of the monetary weight assigned by each individual to each bet in his monthly portfolio on the price associated with the selected team, a dummy variable indicating whether the selected outcome backs the home team or the away team, the difference (denoted by ) between measures of past performance, popularity, and location for the selected team and its opponent, and the number of bets in the monthly portfolio of the individual. The numbers in the table correspond to the proportion of individuals for whom the coefcient of the respective variable is positive/negative and signicantly positive/negative at the 5% level (in parentheses). Results are based on individuals with at least 30 bets. Wagers backing the draw outcome are excluded. Streak is the duration -the number of matches- of the current winning or losing streak of the team backed by the bettor; it is positive (negative) if the selected team is on a winning (losing) streak, it is not dened for the rst match of each team/season, and is missing for teams with no past performance information. The draw outcome is assumed to maintain a teams current streak. PopularMatch is a dummy indicating bets on matches that involve teams that are highly ranked according to the annual team coefcients of the previous season. DomesticMatch (LocalMatch) is a dummy indicating bets on matches that involve teams located in the bettors country (area) of residence; these variables are missing for individuals with no location information. FavoriteTeam indicates bets that back the team that is most frequently backed by the individual placing the bet. Standard errors are clustered at the match level. The False Discovery Rate (FDR) correction is applied to the p -values of the individual tests to control for the problem of false discoveries in multiple testing.

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(1) Pos (%) Neg (%) Pos (%) (2) Neg (%) Pos (%) (3) Neg (%) Pos (%) (4) Neg (%) Pos (%) (5) Neg (%) Streak 53.80 (3.80) PopularMatch 46.20 (1.17) 60.51 (9.37) DomesticMatch 39.49 (4.56) 56.27 (10.13) LocalMatch 43.73 (8.53) 57.10 (9.68) FavoriteTeam 42.90 (11.61) 55.74 (5.33) 63.11 (9.43) 46.31 (8.20) 57.79 (9.84) 61.89 (8.61) # of Individuals 342 342 395 395 375 375 310 310 244 44.26 (1.23) 36.89 (2.46) 53.69 (12.30) 42.21 (3.69) 38.11 (3.28) 244

Table 11: Behavioral Biases and Individual Characteristics

This table presents correlations among individual characteristics and individual-specic measures of the bias towards local teams, domestic teams, popular teams, and teams that are on long winning streaks. All biases are proxied by the ratio of individual to market portfolio weights allocated to the respective team group, i.e., the mean (across all months) portfolio weight each individual places on the respective team group divided by the mean proportion of bets contemporaneously available in the sportsbook that backs this team group. Teams are on a long winning streak if they are on a winning streak that is more than 3 matches long. A team is dened as popular if it is highly ranked according to the contemporaneous annual UEFA team coefcients. A team is dened as local (domestic) if it is based in the individuals area (country) of residence. Number of bets (Value of bets) is the number (value) of bets placed by the individual each month. Female and Rural are dummies indicating gender and residential area. Age is in years. Return is the mean net return realized by each individual. t statistics using robust standard errors are reported below the coefcients. / / indicate signicance at the 10%/5%/1% levels.
Local Bias Local Bias Domestic Bias Popular Bias LongWin Bias Female Age Rural Number of Bets Value of Bets Return 1.00 Domestic Bias 0.67 1.00 Popular Bias 0.01 0.04 1.00 LongWin Bias -0.01 0.03 -0.01 1.00 Female -0.01 -0.04 -0.06 -0.01 1.00 Age 0.02 0.02 -0.09 0.06 -0.02 1.00 Rural -0.06 -0.01 -0.03 -0.02 -0.05 -0.04 1.00 Number of Bets -0.15 -0.13 -0.11 -0.03 -0.03 0.11 0.05 1.00 Value of Bets -0.07 -0.04 -0.05 -0.01 0.01 0.12 0.01 0.42 1.00 Return -0.06 0.03 0.06 0.08 0.03 0.05 0.00 0.02 -0.01 1.00

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