Longshot Bias

Longshot bias, also called favorite-longshot bias, describes a systematic distortion in which long-odds outcomes trade at prices implying a higher chance of winning than they truly have, while heavy favorites trade cheaper than their real likelihood warrants. The pattern has been observed across decades of horse-racing data, sports betting markets, and event-contract exchanges. In practical terms, the implied probability read from a longshot price tends to overstate reality, and the implied probability on a favorite tends to understate it, so the two ends of the price range are mispriced in opposite directions.

In a prediction market the bias shows up in the prices of binary outcome shares. A contract on an unlikely event may persistently trade a few cents above its fair value, and a near-certain contract may trade a few cents below one dollar, even on liquid venues. Several explanations are offered: some participants prefer the large potential payout of a longshot and accept a poor expected value for it, others overweight small probabilities, and limits on capital or short-selling can keep favorites from being bid all the way up to fair value.

For operators reading their books, longshot bias is a lens on where prices may be drifting from true odds. Sustained overpricing on low-probability contracts and underpricing on favorites can indicate skewed demand rather than mispriced fundamentals, which matters when interpreting the betting margin embedded in a line or assessing whether a market is efficient. Persistent bias of this kind also creates room for sharper participants to correct prices, often through prediction market arbitrage that nudges quotes back toward calibrated levels.

For affiliates assessing value, longshot bias is relevant to how a venue's odds compare to true probabilities and to honest content. Because the bias means longshot betting odds usually carry worse expected value than they appear to, affiliates promoting a prediction markets product can frame educational content around realistic probability rather than the appeal of large but unlikely payouts, which supports brand-safe, operator-aligned messaging.