Racetrack Betting: Do Bettors Understand the Odds?

'!'here is considerable literature which concludes that the average person does not understand elementary probability and statistics (Tversky 1971 ). In one experiment of this type subjects were asked whether a family of 6 children born in the order GBGBBG was more or less likely than one in which the birth order was BGBBBB. About 80% chose the first sequence in spite of the fact that both are approximately equally likely, with the second actually being slightly more probable since male births are slightly more common. This experiment, like most in the field~ is based on questions asked of subjects in a controlled, artificial setting. A naturally occurring setting in which the subjects have a continuing stake in the outcome is a potentially better way to determine whether or not the public understands probability. Examples of such settings are racetracks and stock markets. Racetracks provide the simpler arena; the choice of actions is more restricted and one can bet only for events, not against them as is possible in short selling on the stock market. We therefore analyzed racetrack betting in an attempt to discover the patrons' betting savvy, and we looked only at the simplest type of bet - bets on a horse to win. Our first assumption is that bettors attempt to win money. Our second one is that they have an internal perception of which horse will win a given race. This perception results in their personal, subjective probability for the outcome of the race. We want to know whether this personal probability has any basis in reality.