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Snap Judgment: When to Trust Your Instincts, When to Ignore Them, and How to Avoid Making Big Mistakes with Your Money by David E. Adler

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15. Why Investors Bet on Long-Shot Horses

The most persistent mistake in horse betting is known as “the favorite long-shot bias.” This is the tendency to over-bet long shots and under-bet favorites. The true chance of the long shot horse winning is much worse than the odds at the track suggest. The payoff from a long shot may be 100 to 1, but the true odds may be closer to 200 to 1.

Gamblers seem to love long shots, even though the returns are remarkably dismal. The favorite long-shot bias has been observed for over 50 years in the U.S., England, and Australia, (though strangely less so in Hong Kong or Japan). Based on the outcomes of over five million races in the U.S., the average bet on a long-shot horse (with odds of 100 to 1 or greater) ...

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