It’s a Sure Win! Experimental evidence on overconfidence in betting behavior

We conduct an experiment with regular sports bettors in Tanzania to investigate how they value their bets and form expectations about winning probabilities. By comparing a sports bet to a neutral urn-and-balls lottery with identical odds, we find that subjects under the sports framing assign higher subjective values (certainty equivalents) to their bets and are significantly more optimistic about their chances of winning, even though, in fact, they are not more likely to win. This is consistent with bettors being overconfident in their ability to predict sports outcomes. Coupled with data on betting frequency and motives, our results suggest that, by leveraging gamblers’ overconfidence, sports betting magnifies their financial losses.