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Probability and Utility Estimates for Racetrack Bettors

Mukhtar M. Ali
Journal of Political Economy
Vol. 85, No. 4 (Aug., 1977), pp. 803-815
Stable URL: http://www.jstor.org/stable/1828704
Page Count: 13
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Probability and Utility Estimates for Racetrack Bettors
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Abstract

Subjective and estimated objective winning probabilities are obtained from 20,247 harness horse races. It is shown that subjectively a horse with a low winning probability is exaggerated and one with a high probability of winning is depressed. Various hypotheses characterizing the bettors' behavior to explain the observed subjective-objective probability relation are explored. Under some simplified assumptions, a utility of wealth function of a decision maker is derived, and a quantitative summary measure of his risk attitude is defined. Attitude toward risk of a representative bettor is examined. It is found that he is a risk lover and tends to take more risk as his capital dwindles.

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