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Abstract
Betting strategies based on the presence of home-underdog bias in the NFL have been shown to produce returns in excess of those predicted by market efficiency in some situations. Dare and Dennis (2011) attribute this bias to bettors underestimating the scoring ability of home underdogs. Using a more recent sample of data, we find contradictory results. We challenge the assumptions of the Dare and Dennis (2011) model and use detailed betting data to offer an alternative rationale for the home-underdog bias. We illustrate that bettors have clear and predictable tendencies for betting on the best teams, and sports books do not appear to be operating as suggested by the balanced-book hypothesis.
Keywords: market efficiency, betting markets, NFL, home-underdog bias
In a recent article, Dare and Dennis (2011) explore the nature of the home-underdog bias in NFL betting markets. They conclude that the home-underdog bias exists due to bettors consistently underestimating the scoring ability of home underdogs, but prop- erly estimating the scoring ability of away favorites. Their findings depend critically on two underlying assumptions: first, prices set in the NFL betting market, the point spread and the total, are set simultaneously and reflect bettors forecasting the final score of the game, which informs their wagering decisions; second, the presence of a balanced book on the part of the sports book reflecting that prices are set to clear the market by equalizing betting on either side of the point spread and totals propositions.
Although a balanced book is not explicitly posited by Dare and Dennis (2011), descriptions of their findings as reflecting the overall actions of bettors, their lack of any explicit discussion of sports book behavior, and their statement that "both the sides and totals betting lines are determined by market participants, they should reflect market expectations and forces" (p. 661) suggest that their findings be interpreted as stemming from the traditional balanced-book model.
As noted by Dare and Dennis (2011), research on sports betting markets in North American team sports has identified what Woodland and Woodland (1994, 2003, 2001) termed a "reverse-favorite longshot" bias in baseball and hockey, where bets on better teams tend to produce larger negative returns than bets on weaker teams.1 This bias has been attributed to the actions...