How Accurately DoBettors Bet in Doubles ?

Victor S.Y.Lo and Kelly Buschel

The University of British Columbia and the University of Hong Kong

Previous studies in the analysis of double bets in racetrack markets compared the payoffs resulting from
a double bet with a parlay contructed by the bettors. We compare the accuracy of implied winning
probabilities between double bet and bets based on a single race and suggest that bettors bet on doubles
less accurately. We also report the analysis based on payoff comparisons for a new data set.
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1. Introduction

The racetrack betting market has long been recognised as a source for investigating market
efficiency and risk behavior. The simplest bet is to win which pays off if the single horse chosen by a
bettor wins the race. Many previous studies have concentrated on the favorite-longshot bias of the win
bet (e.g. Ali(1977). Ziemba and Hausch (1986), Snyder(1978). Busche and Hall (1988), Bacon-Shone,
Lo and Busche (t992 a)). Some researchers are interested in the efficiency of bet types which involve
more than one race. A double bet pays off if the two horses chosen by a better both win in two
consecutive races, and thus it is related to the win events of two races. A parlay is a way by which
bettors construct lowprobability-high-return bets. The simplest parlay is to bet the entire payoff from a
winning horse in the first race to another horse in the next race. When both of the horses in the two races
win, the parlay pays off. Therefore, the parlay is a combination of win bets in two consecutiveraces and
it has the same probability of receiving payoff for a double bet. Ali (1979) and Asch and Quandt (1987)
compare the payoffs derived from betting on double bets with parlays. Using data sets of double bets in
Meadowlands and Hong Kong. we compare the accuracy of implied winniig probabilitiesof double bets
with other bet types based on single race. The Hong Kong data is ufiied to support Asch and Quandt
(1987)'s result that double bets have hig6er payoffs than parlays.

2. Accuracy of Implied Probabilities for Double Bets

The Meadowlands data has 122 pairs of races for double bets in 1984. This has been analysed by Asch
and Quandt (1987) in comparing the payoffs between double bets and parlays. We now compare the
accuracy of the double bet fractions with that of win bet fractions for estimating the probability of
receiving profit for a double bet. Let r,'"and r,@be the win probabilities of horses i a n d j in the first
and second races, respectively. Betting on horses i a n d j to double will have the probability of receiving

profit, xi# = q%,@ since the win events in the two races are independent. Define = the double
bet fraction (the fraction of the total double bet amounts) for i & j in the two races. and 8'"and PyJ to
be the win bet fractions (fractions of money bet on the win market) of i and] in the two races. Since each
of these win bet fractions is a good estimate of the associated win probability (e.g. Busche and Hall
(1988), Snyder (1978)), P,'"P?) can be used to estimate rw We use the log likelihoods to compare the

We thank Richard Quandt for his U.S. data.

465
 466 V. S. Y. LO AND K. BUSCHE

accuracy of two different estimates for a-b. - Double bet fractions: logti:l,, ; Win bet fractions

: 10g(k'~&F'&~) where the summations are over all the available pairs of races, the subscript r
I

denotes the race number and [l] and [1;1] indicate that the probabilities are associated with the winning
horses. These values for the double bet fractions and the win bet fractions are 452.31 and -449.69,
respectively. The log likelihoods for discrete events are simply logarithms of the probabilities of
observing what we did observe given a particular model. Thus higher log likelihood implies higher chance
of observing what we observed and hence the model is closer to reality. To compare the accuracy of the
two fractions formally, we apply the Cox non-nested hypothesis test (Cox(1961.62)). To test Hi double
bet fraction reflects the true probability versus H,:win bet fraction reflects the true probability, the test
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has no clear null and alternative hypotheses. We evaluate

T/-
(bgli$- b&kJ - E(bglikf - bglikr 1 H)
SD(bglikf - bglikr IH)
and Tr - (bglik, - bglik> - E(bglikr - bglikf [ HJ
SD(bglikr - bglik,[ HJ
where loglik, = the log likelihood under 4 (i=f.g), and E(. I HJ and SD(.I HJ are the expectation and
standard deviation respectively when HIis true. Under H,, -N(O.l) asymptotically. will be largely
negative if HIis rejected in favor of the alternativehypothesis. In our case, E(. I HJ and SD(.I HJ can
be computed straightforwardly,but their complicated forms are not shown here. Our empirical results
are T, = -2.55 and 'T = -0.98, and thus we confirm that the double bet fractions are less accurate. A
reason seems to be that those bettors interested in the double bets have to place their bets before the first
race and they cannot observe the evolution of odds of double bets. But for the win bet, bettors can
observe the evolution of odds in both races, which may be important in revealing relevant information.

A similar analysis follows for the 1981-89 Hong Kong data. We consider the double quinella bet
since the double bet in Hong Kong is complicated by consolation. Quinella is a bet that pays off if the
two horses chosen by a bettor finish first and second regardless of their orders. Double quinella pays off
if the four horses chosen finish fist and second in the two consecutive races. We now compare the
quinella bet fractions, the double quinella bet fractions and the win bet fractions for estimating the
probability of making profits for double quinella by computing the relevant log likelihoods. 691 pairs of
races are available, the empirical results are shown in Table 1. The log likelihoods based on win bet
fractions are found by the Harville model (Harville (1973)) and the Henery model (Henery (1981)),

Table 1
Estimations of probabilities of double quinella occurring (1382 races)
1 II

Bet types log likelihood

Double auinella bet fractions 4844.64
Quinella bet fractions -4777.92
Win bet fractions:
Harville 4805.14
Henery 4788.26
 HOW ACCURATELY DO BETTORS BET IN DOUBLES? 467

respectively. The former assumes that the running times are exponentially distributed while the latter
assumes they are normally distributed. Details are discussed in Bacon-Shone, Lo and Busche (1992 b).

Due to unavailability of data for all combinations, we can only compare the log likelihoods
directly. The result that the probabilities implied by the win bet fractions are more accurate than the
double quinella bet fractions is consistent with the Meadowlands result. Quinella bet fractions are most
accurate among these.

3. Testing the Payoffs of Double Bets in Hong Kong

Using a simple t-test, Asch and Quandt (1987) analysed the Meadowlands data and concluded that the
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mean return of double bet is higher than that of parlay formed by win bet. Using the Hong Kong data,
comparing the double quinella bet and the parlay derived from quinella bets in two consecutive races is
trivial. To conduct a one or two-sided test H,: Expected payoff of double quinella bet = Expected payoff
of parlay, a paired comparison t-test is used and the pair of observed values are
(l-f,,J/D:z12, and (l-f)'/(Q:&QE,)where t and r4 are the track take (commission) of the quinella
(0.17) and the double quinella (0.23) respectively, and D:& and Qg, are respectively the
double quinella bet fraction and quinella bet fractions for the winning combinations in the two races. The
t-statistic = 3.31 and we reject H,,at any conventional levelz.

Another test is related to the Hong Kong double bet which involves consolation: if i wins the first
race, j and k respectively finish first and second in the second race, the payoff = 0.85(l-f)/Didand the
consolation = 0.15(1-f)/D, where Did= the double bet fraction of i &j and f = the track take = 0.17.
A parlay similar to this double bet is: if i wins the first race, betting the entire payoff to place on a horse
in the next race, where place bet pays off if the horse goes first or second. 108 pairs of races are
available to test (one or two-sided) H,:Expected payoff of double bet = Expected parlay payoff. The
observed values are: total double bet payoff per $1 bet = 0.85(1-r)/L+,.,, + 0.15(l-f)/DL,;q and parlay

payoff per $1 bet = { [(l-t)z

P l y - P # - P g ' ] ( 7 1+ L ) + 2 , where the superscript
p'l'111 I 2PG, 2 Pg;
denotes the race number (1st or 2nd), [fl denotes the horse finishing ith, [ijl denote the horses finishing
ith and jth in the two races, and D,P and PI are respectively double bet fraction, win bet fraction and
total amount of place bet associated with the horse(s) indicated in the subscripts. The t-statistic becomes
3.93 which also rejects H,,at any reasonable level'. Thus, all the findings in this section are consistent
with Asch and Quandt (1987).

We also follow Asch and Quandt (1987) to replace (l-r,,J by (1-r) to equalise the track takes. The
the t-statistic drops to 1.31. Hence, the previous signficant difference appears to be due to the effect of
the difference in track takes.

'We have no way to equalize the track takes because of the complicated form of parlay payoff in this
case.
 468 V. S. Y.LO AND K.BUSCHE

4. Conclusions

First, the double bet fractions and the double quinella bet fractions are less accurate than the win bet
fractions and the quinella bet fractions in predicting probabilities. One explanation for both findings is
that bettors betting on the double or the double quinellas cannot observe the evolution of odds of any bet
type or updated information for the second race which may indicate some useful information at the time
they place their bets. Also, if bettors with better information bet on the double, their information would
be released to the public in the second race, so it is expeaed that they would try to bet as late as possible
in the win market. Second, we conclude that the double bet or the double quinella bet has a higher
expected payoff than the self-constructed parlays. This may be because of the fact that it has less takes.
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