Market frictions and overpriced favourites: evidence from arena football

Prior academic studies find that bets on underdogs persistently win more often than expected in National Football League (NFL) and National Collegiate Athletic Association (NCAA) football gambling markets. We extend this stream of literature by examining this 'underdog bias' in the market for Arena Football League (AFL) bets, a setting in which both betting limits and bettor sophistication are comparatively low. Results show that the underdog bias is significantly stronger in the AFL, suggesting that smaller and less liquid markets are more heavily influenced by these, and perhaps other, behavioural biases.