Gambling motivation and involvement: A review of social

Betting markets
Economists have put much effort into research on the effectiveness of financial markets,
mainly the stock market. If a stock market is effective, all current and relevant
information on a given stock is reflected in its price, which is set by the balance
between supply and demand. No actor on the market knows anything relevant
about the stock that others do not know and all can in principle perform the same
analyses of the market. Anything beyond logical conclusions drawn from such analyses
are as good as a guess. Thus, if the market is fully effective, the application of
analyses of particular stocks will not, in the long run, produce a greater profit than
investments in the market at large. If the market is ineffective, however, profits can
be made by investing in stocks selected on the basis of better knowledge than other
actors possess or by superior analytical ability. Among economists, there has long
been debate about to what extent the stock market is effective [216].
Many tests of the efficient market hypothesis have been performed. There are,
however, some inherent methodological problems, which concern, among other
things, the complexity of stock markets with different sectors and when to set a
final price of a stock (selling price), to be compared to the initial price (buying
price) and thereby used to calculate the profit of an investment. Economists have
therefore looked at markets other than the stock market to test the efficient market
hypothesis and related assumptions, including the market for horse race bets, i.e.
horse betting.
Although the markets for stocks and horse betting differ as to the expected longterm
return [217], there are some close similarities and, for researchers, horse betting
has the advantage of being less complex. Investing in stocks corresponds to
betting on horses and the return on the bets corresponds to the return gained when
selling stocks that have been invested in. The return of horse bets can be calculated
for a variety of factors, such as high/low odds horses, the timing of the bet relative
to the start of the race, the available amount of information about the horses, and
the horses’ starting position. Although there has been some interest in betting on
horses at bookmakers, to test hypotheses about the influence of insider knowledge
[218–220] for instance, most economic studies on horse betting have concerned
pari-mutuel (totalizator) betting. The literature on the economics of horse betting is
quite substantial [221, 222].
The many economic analyses of pari-mutuel betting markets all come to the same
conclusion: these markets are quite effective. There are some imperfections, resulting
from biases in betting behavior, but these can only in some rare cases be utilized
to make a consistent profit from following a specific betting strategy. Thus, the
knowledge and analytical power of the collective of bettors, as it is accumulated
by the totalizator and displayed as odds, is almost always superior to that of any
individual player [223].
The horse betting collective at major race- and trotting tracks has thus, in an
economic sense, good information and acts rationally overall. This does not mean,
G A M B L I N G M O T I VAT I O N A N D I N V O LV E M E N T 41