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Sports betting and financial market data show how people misinterpret new information in predictable ways

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2024-12-01 03:30:03

This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility:

Let's say it's a home game for the Golden State Warriors and Steph Curry shows he's still got it, sinking back-to-back three-pointers minutes into the first quarter. The fans at Chase Center take notice, and so do the betting markets, where the odds move in the Warriors' favor.

Yet it's a long game. The away team comes back, and with just 10 seconds to go, the Warriors are down by two and have just missed a shot. A victory is unlikely, and the betting odds should have shifted to reflect that near-certainty. But they don't.

"If you look at the history of NBA games, the probability that a team with the ball, up by two with 10 seconds left, wins is north of 90%," says Eben Lazarus, an assistant professor of finance at UC Berkeley's Haas School of Business. "But what shows up in the betting markets is that people treat baskets as too similar over the course of the game. They overreact to information that's not very important—early baskets—and underreact to strong signals at the end."

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