Biases Never Walk Alone : An Empirical Analysis of the Effect of Overconfidence on Probabilities

This paper presents evidence of the impact of overconfidence bias in asset prices drawn from a study based on data from tennis betting exchanges. A series of betting strategies in tournaments with a clear-cut favorite are shown to yield significant economic returns. The impact of overconfidence bias on betting odds increases with levels of disagreement, trading volume and media coverage. Just as in traditional financial markets, arbitrage limits are shown to be a necessary condition for the impact of behavioral biases on prices