On Sports Betting and Uncertainty of Outcome

Abstract

This paper provides an explanation for sports betting that does not appeal to risk-preferring preferences. The strategy is to link betting to the uncertainty of outcome hypothesis, a cornerstone of sports economics. The model relies on the inclusion of a contest utility function as part of a fan’s overall utility. The analysis focuses on point-spread betting and shows that sports fans can increase their contest utility by placing a bet if the contest is unequal and if they are either non-partisan or are sufficiently strong supporters of the underdog. When these conditions are met, an individual will place the bet if the utility gain offsets the expected cost.