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Racial Biases and Market Outcomes: “White Men Can’t Jump,” But Would You Bet On It?

Racial Biases and Market Outcomes: “White Men Can’t Jump,” But Would You Bet On It?. Deniz Igan Marcelo Pinheiro John Smith IMF Economic Consulting Rutgers-Camden Services, LLC . IMF Stuff.

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Racial Biases and Market Outcomes: “White Men Can’t Jump,” But Would You Bet On It?

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  1. Racial Biases and Market Outcomes:“White Men Can’t Jump,” But Would You Bet On It? DenizIgan Marcelo Pinheiro John Smith IMF Economic Consulting Rutgers-Camden Services, LLC

  2. IMF Stuff • The views expressed in this paper are those of the authors and do not necessarily represent those of the International Monetary Fund or its policy

  3. Overview • Market: • Well-defined prices • Well-defined outcomes • Finite time horizon • Abundant information • Efficiently processes information • (Prices reflect relevant information) • (Prices do not reflect irrelevant information) • Except for race of participants • Racially biased point spreads

  4. What is a point spread? • One bets $11 • to win $10 • winner receives $21 • Lakers visit Wizards • Spread is Lakers (-3.5) • Wizards (+3.5) • Bet on Lakers would pay: • If Lakers win by 4 or more • Bet on Wizards would pay: • if Wizards win the game • or lose by 3 or fewer points • Market based estimate of outcome

  5. Overview of Data • Regular season games played in the NBA • from 1993-94 to 2007-08 season • 16,000+ team-game observations • Racial categorization of player • visual inspection • “Black” or “Not” • What do we mean by “more black” teams? • Number of black starters • Number of black players on roster • Number of minutes played by black players

  6. Overview of Results • We find that “more black” teams • Face a larger point spread • Perform worse against spread • Because the point spread is “too high” • A simple, profitable betting strategy exists

  7. Overview of Results • Racial stereotypes are affecting • market outcomes • Estimates of talent are influenced by the • race of the participants

  8. “I really don’t care about sports”(But what is known about racial bias?) • Survey/Psychology • Find evidence of bias • Not incentivized • Not punished for being wrong • Not repeated • Can’t learn from mistakes • Overstate market effect of bias • Empirical Literature • Find evidence of bias • Possibly related to unobserved heterogeneity • Our paper is not subject to any such critique!

  9. Basic questions: • Is basketball betting market efficient? • Is the basketball betting market biased? • Are there profit opportunities?

  10. Market is efficient, or is it? Not significantly different from Normal with zero mean Final score – point spread

  11. Race and point spread Team, Season, Team-Season Fixed Effects More black team faces higher point spread 11

  12. Race and winning margin over spread Team, Season, Team-Season Fixed Effects More black team has lower margin over spread

  13. Race and probability of covering spread Team, Season, Team-Season Fixed Effects More black team less likely to cover spread

  14. Show me the money • In sample • Bet $11 on home team • if has at least X more white starters than visitors • Get back $21 if you win

  15. What is going on? • Explanation of biased point spread • Imagine two teams exactly as good • “true” point spread is 0 • Both win with equal probability • But one is “more black” • Bettors more inclined to bet • Point spread of -3 would even the bets • Bookmakers set spread at -2 • More than half the money is on the bet which wins • less than half the time

  16. Conclusions • Using evidence from NBA point spreads over 15 seasons • More black teams • Face higher point spread • Perform worse against spread • Evidence that bookmakers set biased spread • Profit opportunities exist

  17. Why should I care? • If people make mistaken financial decisions • Based upon racial stereotypes • In settings with • Well-defined prices • Well-defined outcomes • Finite time horizon • Abundant information • What about less objective settings? • Employment • Access to credit

  18. “White Men Can’t Jump” • Basketball hustler • Wins money on outcome of his games • Effective • Because he is white • Stereotype • racial membership • related to proficiency in basketball

  19. What is the cause of the bias? • More black teams • Face higher point spread • Perform worse against point spread • But what causes this? • Bookmakers setting biased spread? • Exploiting bettors’ stereotypes? • Biased bettors moving the spread? • By excessive betting

  20. Using another dataset (from SportsBetting.com) opening and closing lines 2003-04 to 2008-09 seasons Bookmakers setting biases spread No relationship between spread movement and race Bettors moving line Relationship between spread movement and race Movement of spread

  21. Movement of spread • No relationship between movement and race • Favor explanation that • bookmakers set biased line

  22. Things done in paper but not here • Examine amounts of money bet • Account for • Race of Referees • Race of Coaches • Racial composition of host cities/states • Difference in records • Outcome of recent games • Outcome of teams’ last meeting • Point spread of teams’ last meeting

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