ECON30580 Economics of Betting Markets

Academic Year 2024/2025

Betting markets have grown dramatically in recent years with most bets now placed online via computers or smartphones. This module covers the economics of these markets. We will use economic theories to describe how bettors behave and how different kinds of betting markets work. In particular, we emphasise how betting odds will behave differently depending on the betting market's structure. We will examine research that assesses these theories by looking at evidence on betting odds and the average payoffs to bettors from various types of bets.

After discussing the history of betting markets, we will cover topics such as the use of betting odds to estimate probabilities, the relevance to betting of the Law of Large Numbers, the classic Gambler's Ruin problem, the role of risk in decision-making, favourite-longshot bias (the pattern for losses betting on favourites to be lower than losses betting on longshots), the economics of ``exotic'' bets such as accumulators and prediction markets where people can agree to bilateral bets on the outcomes of non-sports events. We will also discuss theory and evidence on problem gambling and the case for regulation of the betting sector.

Warning: The module does not offer a recipe for success in betting. The lecturer does not bet and does not recommend betting. On average bettors loses money and you will almost certainly be worse off if you spend money on betting.

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Curricular information is subject to change

Learning Outcomes:

Upon completion of this module, you will
• Understand the history of betting markets and how they have changed in recent decades.
• Be able to use betting odds on an event to calculate implied probabilities and the bookmaker’s profit margin.
• Know how to use the economics of decision making under uncertainty to model decisions taken to place money in betting markets.
• Understand how different betting market structures generate different outcomes.
• Be knowledgeable about the empirical literature on outcomes in various betting markets.
• Understand why certain kinds of bets have higher average loss rates than others.
• Be able to evaluate arguments for and against "optimal betting" rules such as the Kelly criterion.
• Be aware of the social issues caused by problem gambling and the policy debates about restrictions on betting.

Indicative Module Content:

1. Introduction
2. The past and present of betting markets
3. Basics of betting markets: Odds, margins, win rates, taxation
4. The Law of Large Numbers and the Gambler's Ruin
5. Risk-taking and gambling
6. Disagreement and the wisdom of crowds
7. Pari-mutuel betting and the favourite-longshot bias
8. Efficiencies and inefficiencies in fixed-odds betting markets
9. Competitive fixed-odds bookmakers
10. Monopolistic fixed-odds bookmakers
11. Spread betting and the Asian Handicap market for soccer bets
12. Are bookmakers biased?
13. What determines bookmakers’ margins?
14. Accumulators and proposition bets
15. Inside information in sports betting?
16. Betting exchanges and prediction markets
17. How much to bet? The Kelly criterion
18. More on prediction markets
19. Gambling addiction, social problems and regulation

Student Effort Hours: 
Student Effort Type Hours


Autonomous Student Learning




Approaches to Teaching and Learning:
The module is based around lectures given by the module co-ordinator. There is no set textbook. Instead, the principle teaching materials are a set of lecture notes provided by the module co-ordinator and a number of research papers.

Lecture slides are made available in advance of live in-person classes which will give students a chance to prepare for lectures and come to class ready to engage and ask questions about material. 
Requirements, Exclusions and Recommendations
Learning Recommendations:

There are no formal pre-requisites for this module but it is strongly recommended that students have a good understanding of statistics and also that they have an understanding of intermediate microeconomics material on optimisation of utility and decision-making under uncertainty.

Module Requisites and Incompatibles
Not applicable to this module.
Assessment Strategy  
Description Timing Open Book Exam Component Scale Must Pass Component % of Final Grade

Not yet recorded.

Carry forward of passed components
Resit In Terminal Exam
Summer Yes - 2 Hour
Please see Student Jargon Buster for more information about remediation types and timing. 
Feedback Strategy/Strategies

• Feedback individually to students, on an activity or draft prior to summative assessment
• Group/class feedback, post-assessment

How will my Feedback be Delivered?

The module co-ordinator will be available throughout the term to provide feedback in relation to preparing for assessments and in relation to how the assessment has been graded.