Behavioral Home Bias in a Real Market Setting: Evidence from Online Sports Betting

Abstract

We study the home bias using individual-level data from an online sports-betting market. Contrary to other markets where home bias is confounded by institutional and information frictions, our market's experimental-like features enable us to test cleanly whether the psychological drivers of the home bias are strong enough to survive significant welfare costs. We find that individuals exhibit a bias toward home teams, which does not yield superior performance but distorts portfolios, generating welfare costs of similar magnitude as in the stock market. Our findings help solidify the foundation of the behavioral explanation of the home bias in other real markets.