Is one price enough to value a state-contingent asset correctly? Evidence from a gambling market

The answer to this question, based on a study of 1000 greyhound races, is 'no'. Although the efficient markets hypothesis asserts that speculative market prices optimally encapsulate all relevant information, it is found that 'Shin probabilities' (based on Shin, 1993), in which a dog's winning probability is a complicated function of the winning probabilities of all contenders in the race, correct the favouritelongshot bias, and in doing so dominate the predictive abilities of individual market prices, and of linear and non-linear functions of them. Since there is an equivalent bias in at least some financial markets, the finding may have wider application.