The disposition effect in cash-out betting and impact of behavioural biases

Session Title

Session 1-1-E: Sports Betting

Presentation Type

Paper Presentation

Location

Park MGM, Las Vegas, NV

Start Date

23-5-2023 10:15 AM

End Date

23-5-2023 11:45 AM

Disciplines

Behavioral Economics | Econometrics | Economic Policy

Abstract

The disposition effect is the observed anomaly in behavioural finance whereby investors tend to sell off assets that have increased in value, realising the gains, and hold assets that have decreased in value, in the hope that the trend reverses. If markets are efficient there is no clear rationale for this behaviour.

The advent of cash out features allows sports bettors to trade in their bet, realising gains or preventing the potential loss of their entire stake, prior to the end of the event, with the cash out terms offered by the bookmaker dependent on what has occurred in the event so far. We can therefore draw parallels between sports betting and financial markets, and binary options in particular. One key difference between sportsbetting and financial markets is the absence of a liquid secondary market, meaning that the bookmaker effectively has a monopoly on the cash out market.

Our work takes transaction level sportsbook data and attempts to measure the factors that influence the propensity for customers to cash out of their positions, including the characteristics of the event, the customer and the bet itself.

Implication statement

This is an important expansion of our understanding of consumer behaviour in gambling markets. Our research aims to cast new light in previously unexplored areas, including the interplay between known biases, including the disposition effect and recency. It does so using granular data that has previously been unavailable to researchers.

Keywords

Economics of gambling, disposition effect, consumer behaviour, consumer decision making, behavioural biases

Author Bios

Adam Rivers is a Partner at KPMG Economics. He leads the firm's consulting practice in the betting and gaming sector, providing strategic advice to operators, suppliers, affiliates and regulators. He frequently publishes sector thought leadership and takes speaking roles at sector, academic and legal conferences on a global basis. He holds an MSc in Industrial Economics from the University of East Anglia.

Dr. Alasdair Brown is an Associate Professor of Economics at the University of East Anglia. His research interests are in betting markets, behavioural finance, market microstructure and experimental finance. He holds a PhD in Finance and Management from SOAS (London), an MSc in Financial Engineering from Birkbeck (London) and a BSc in Economics from Birmingham. His work has been published in leading economics and finance journals including The Economic Journal and Review of Finance.

James Bentley works in KPMG's Economics practice, based in London, UK. He has worked extensively in betting and gaming over the past seven years, advising clients on range of topics, from business strategy initiatives to modelling the impact of regulatory intervention. He holds a bachelor’s degree in mathematics and a master’s in economics and finance, both from the University of Bath, and his interests include applying quantitative methods to large scale datasets to gain insights into customer behaviour.

Funding Sources

No funding received.

Competing Interests

Adam and James are part of a consultancy team that provides services to gambling operators and regulators

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May 23rd, 10:15 AM May 23rd, 11:45 AM

The disposition effect in cash-out betting and impact of behavioural biases

Park MGM, Las Vegas, NV

The disposition effect is the observed anomaly in behavioural finance whereby investors tend to sell off assets that have increased in value, realising the gains, and hold assets that have decreased in value, in the hope that the trend reverses. If markets are efficient there is no clear rationale for this behaviour.

The advent of cash out features allows sports bettors to trade in their bet, realising gains or preventing the potential loss of their entire stake, prior to the end of the event, with the cash out terms offered by the bookmaker dependent on what has occurred in the event so far. We can therefore draw parallels between sports betting and financial markets, and binary options in particular. One key difference between sportsbetting and financial markets is the absence of a liquid secondary market, meaning that the bookmaker effectively has a monopoly on the cash out market.

Our work takes transaction level sportsbook data and attempts to measure the factors that influence the propensity for customers to cash out of their positions, including the characteristics of the event, the customer and the bet itself.

Implication statement

This is an important expansion of our understanding of consumer behaviour in gambling markets. Our research aims to cast new light in previously unexplored areas, including the interplay between known biases, including the disposition effect and recency. It does so using granular data that has previously been unavailable to researchers.