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Applied Economics
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The efficiency of exotic wagers in racetrack betting

a a b
Marshall Gramm , C. Nicholas McKinney & Douglas H. Owens
a
Department of Economics and Business , Rhodes College , Memphis, TN 38112-1690, USA
b
Welch Consulting , Suite 520, Silver Spring, Maryland 20910, USA
Published online: 30 Oct 2009.

To cite this article: Marshall Gramm , C. Nicholas McKinney & Douglas H. Owens (2008) The efficiency of exotic wagers in
racetrack betting, Applied Economics, 40:1, 89-97, DOI: 10.1080/00036840701466085

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 Applied Economics, 2008, 40, 89–97

The efficiency of exotic wagers

in racetrack betting
Marshall Gramma,*, C. Nicholas McKinneya and Douglas
H. Owensb
a
Department of Economics and Business, Rhodes College, Memphis,
TN 38112-1690, USA
b
Welch Consulting, Suite 520, Silver Spring, Maryland 20910, USA
Downloaded by [Georgia Tech Library] at 06:11 12 November 2014

Many empirical studies have found the existence of a bias where the
general public overestimates low probability events. This phenomenon has
been termed the favourite-longshot bias and has been much studied in
betting markets. This article looks at efficiency in multihorse ‘exotic’
wagers using 11 194 races run at 35 U.S. racetracks. We find the standard
favourite-longshot in exacta wagers (involves picking the first two finishers
in order). Results are unclear for trifecta wagers (picking the first three
finishers in order).

I. Introduction overestimate the probability of longshots. This

Betting markets have been used as a means to
investigate price discovery and market efficiency
because these natural experiments happen numerous
times daily and have a finite time horizon. For
parimutuel betting markets on horse races, betting on
all races on at a track generally opens at least an hour
before the first race and closes for a specific race
when the gates open and the horse race begins. In a
parimutuel market, the track or host acts only as a
market maker, extracting 15–30% of the total pool in
administration fees, called the ‘take’, with the
remainder of the pool redistributed to holders of
winning tickets. Thus, the general public explicitly
determines prices by placing bets. Because this
natural experiment is repeated daily at racetracks
around the world, there is ample opportunity for the
study of these markets (for a good overview of
the literature, see Sauer 1998 and Vaughan Williams
1999). The prices or odds set by the public through
the parimutuel process have been found empirically
to be fairly accurate estimates of the true outcome
probability, while exhibiting a tendency to
phenomenon has been dubbed the favourite-longshot
bias and has been found repeatedly across numerous
studies in different betting markets. There are a few
instances of a reverse bias, where favourites are
overbet relative to longshots. Coleman (2004) sum-
marizes previous empirical studies.
Those who bet horses typically have a number of
wagering options. These include the standard straight
wagers of win, place and show, and multiple horse
exotic wagers. This article investigates betting market
efficiency in exotic wagers relative to straight wagers.
Specifically, we analyse exactas and trifectas. The
innovation of exotic wagers has great expanded
betting volume at U.S. racetracks over the last 20
years. In order to hit the exacta, a bettor must pick
the exact order of the first two finishers in a race,
while the trifecta involves picking the first three
finishers in exact order. Each of the wagers has its
own unique betting pool, and the payoff is based on
the size of the track take and the number of winning
tickets sold. Table 1 summarizes most available
wagers at U.S. racetracks. Since each of these markets
operates independently, there may be instances of

*Corresponding author. E-mail: gramm@rhodes.edu

Applied Economics ISSN 0003–6846 print/ISSN 1466–4283 online ß 2008 Taylor & Francis 89
http://www.tandf.co.uk/journals
DOI: 10.1080/00036840701466085
 90 M. Gramm et al.
Table 1. Betting options

Average payout Median payout

Betting options Payout criteria on a $2 bet on a $2 bet
Straight
Win 1st $12.98 $7.80
Place 1st or 2nd $6.37 $4.60
Show 1st, 2nd or 3rd $4.27 $3.40
Single race
Exacta Top two finishers in exact order $87.04 $43.80
Quinella Top two finishers in either order $43.35 $23.00
Trifecta Top three finishers in exact order $684.42 $227.40
Superfecta Top four finishers in exact order $3644.57 $1370.40
Multi race
Daily double Winners of two consecutive races $97.17 $45.40
Pick three Winners of three consecutive races $660.19 $239.50
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inefficiencies across betting pools that could be
exploitable.
The literature on exotic wagers falls into one of two
categories: investigations into how to determine
outcome probabilities of these more complicated
wagers and efficiency studies. For the estimation of
outcome probabilities, Harville (1973) demonstrated
that, letting q be the probability of the subscripted
horse winning,
Exacta probability where i is first and j is second
qi qj
¼ ð1Þ
ð 1
qi Þ
Trifecta probability where i is first, j is second
qi qj qk
and k is third ¼

ð1
qi Þ 1
qi
qj
Henery (1981) and Stern (1990) offer alternative
models and Lo et al. (1995) test these methods.
Hausch et al. (1994) estimate exotic probabilities
from win pool data adjusting for the inherent
favourite-longshot bias to determine profitable
wagering opportunities.
The efficiency studies have concluded that exotic
wagers are less accurately priced than win bets. Asch
and Quandt (1987) look at 510 exactas and 122
doubles from 705 races at a New Jersey harness track
and find deviations in pay-offs relative to other
wagers. Their claims on exactas are challenged by
Dolbear (1993), who points out estimation errors but
does not conclude whether or not a bias exists. Asch
and Quandt (1988) find that public estimates of
outcome probabilities are good for exactas but weak
for trifectas. On doubles, Ali (1979) finds no
discrepancy between pay-offs of doubles and parlays
(constructing a double out of consecutive win wagers)
from 1089 bets at 34 North American racetracks.
Asch and Quandt (1987), mentioned above, and Lo
and Busche (1994), with data from Hong Kong races,
find higher returns for doubles. Sobel and Raines
(2003) use 2799 races from two West Virginia dog
tracks and find quinellas and exactas exhibit a more
pronounced favourite-longshot bias than win wagers.
Kanto and Rosenqvist (1994) propose a betting
system to exploit differences between the win pool
and quinella pool and find their system profitable on
111 Finnish races. One concern in each of these
studies is the limited sample size.
The analysis of exacta and trifecta wagers in this
article benefits from a large dataset, which is
composed of 11 194 races run in the U.S. in the fall
of 2002. Table 1 contains the mean and median pay-
offs from the data for most available wagers. We find
ð2Þ
the standard favourite-longshot bias in the win pool
with a more severe bias in the place and show pools.
The nature of the bias in the win pool and exacta pool
are very similar, which might be due to the fact that
payouts for each wager are publicly displayed
throughout betting (as opposed to place, show and
trifecta bets). The exacta, however, offers a lower rate
of return due to higher takeout rates across tracks.
The trifecta pool, which has the least amount of
public information on prices, and where the cost to
participate is the highest, is the most inconsistently
priced wager.
II. Interrelated Parimutuel Markets
This article involves a study of races available to
online subscribers of the TVG network for the fall of
2002. This includes 35 racetracks (23 thoroughbred,
9 harness and 3 thoroughbred and quarterhorses).
 The efficiency of exotic wagers 91
The data, which are composed of 11 194 races, trifectas there are n(n
1)(n
2) combinations. The
include the final amount bet in the win, place and track takeout is twps for straight wagers, te for exactas
show pool on each participant and the payout for and tt for trifectas. For U.S. tracks tt  te > twps . The
win, place, show, exacta and trifecta wagers. Table 2 pay-offs on each winning wager is calculated as
summarizes the data by track. Takeout rates range follows:
from a low of 14% on win, place and show (WPS)
wagers on New York thoroughbred tracks up to Return on a $1 win bet on horse i


27.5% on trifectas at Pompano Park. There is also 1
twps W
wi
¼ Oddsi
great variation in pool size and purses. Pool size is the wi
average per race dollar amount in the win, place and
show pools and ranges from $404 221 at Arlington Return on a $1 place bet on horse i


Park, the host of the 2002 Breeders’ Cup World 1
twps P
pi
pj
Thoroughbred Championships, to $3451 for harness 2pi
racing at Colonial Downs. The Breeders’ Cup also
bolstered average per race purse size at Arlington Return on a $1 show bet on horse i


Park to $122 000. 1
twps S
si
sj
sk
The five interrelated wagers analysed in this study 3si
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(win, place, show, exacta and trifecta) are offered on

almost every race in the dataset. The combinations of Return on a $1 exacta bet where the finish order
potential outcomes differ according to the size of the ð1
te ÞE
eij
field. In an eight-horse race there will be one winner, is i, j
eij
two horses who place and three that show. Therefore,
supposing that each horse has equal win probability, a Return on a $1 trifecta bet where the finish order
random guess will be successful 12.5% of the time to ð1
tt ÞT
tijk
win, 25% to place and 37.5% to show. There are 56 is i, j, k :
tijk
exacta combinations in an eight-horse field (any of the
eight can win with seven fighting it out to finish in The return on a losing wager is
1. The return on a
second) and 336 trifecta combinations (8  7  6). The win wager can be calculated at any time when the
respective probabilities of a successful random guess, betting pool is open, and the net return for a winning
given horses with an equal chance, are 1.8% for exacta horse i is reported as the Odds on horse i. The return
wagers and 0.3% for trifecta wagers. The degree of on place and show wagers depends on the amount bet
difficulty of each wager also corresponds to the on the horses that split the pool. The pay-off for
potential pay-offs. The median show payoff on a $2 horse i will be higher if there is less money bet on the
bet is only $3.40 as compared to $227.40 for a trifecta. other horses that split the pool with horse i.
Each particular wager has its own independent Therefore, place and show pay-offs cannot be
mutuel pool. Thus, the payouts on the five inter- calculated until the end of the race when the order
related bets are derived from the percentage of of finish has been established.
winning tickets from their separate pools. Any
relationship that exists between them results from
how the public prices outcomes across these separate
pools. There are occasionally situations, which arise III. Factors Influencing Efficiency
where a place or show bet will pay more than a win
bet.1 Assume w, p, s, e and t represent the amount bet The perceived risk associated with the particular
on a particular horse or combination of horses wager may influence the composition of participants
corresponding to win, place, show, exacta and trifecta in each particular market and thus affect efficiency.
wagers. The total amount in each betting pool is Previous studies have argued that the favourite-
likewise denoted
Pn W, P, S, E and T, where, for longshot bias is a result of risk-loving behaviour by
example, i¼1 wi ¼ W for n horses in a race. bettors. Applying this theory to comparisons of
For exactas there are n(n
1) combinations and for efficiency in these five markets should result in
1
A notorious example is the disqualification of Nicole’s Dream in an allowance race at Mountaineer Park in 21 August 2006.
Nicole’s Dream, arguably the top turf sprinter in the U.S., was heavily favoured against six overmatched rivals. She sprinted
clear to a 6.5 length win only to be disqualified and placed fourth, knocking her out of the money. The winner Bluegrass
Breeze paid $71.20 to win, $23.20, to place and $109.20 to show. Second place finisher All Platinum paid $5 to place and $25
to show. This occurred because $126 000 of $132 000 in the show pool was bet on Nicole’s Dream including $75 000 from a
single bettor.
 92 M. Gramm et al.
Table 2. Racetracks (10/02–12/02)

Takeout

Track State Type WPS (%) Exacta (%) Trifecta (%) Horses Races Pool size Purse
Aqueduct NY Thoroughbred 14.0 17.5 25.0 3447 403 $321 428 $45 022
Arlington IL Thoroughbred 17.0 20.5 25.0 1103 137 $404 221 $122 000
Balmoral IL Harness 17.0 20.5 25.0 4579 492 $37 255 $7762
Belmont NY Thoroughbred 14.0 17.5 25.0 660 84 $356 853 $51 542
Beulah OH Thoroughbred 18.0 22.0 22.0 6322 665 $25 033 $6800
Calder FL Thoroughbred 18.0 20.0 27.0 5233 641 $120 388 $23 845
Churchill Downs KY Thoroughbred 16.0 19.0 19.0 2280 244 $232 216 $39 598
Colonial Downs VA Harness 18.0 22.0 22.0 1452 190 $3451 $6752
Delta Downs LA Thoroughbred 17.0 20.5 25.0 2312 258 $26 927 $17 428
Dover Downs DE Harness 18.0 20.0 20.0 4391 545 $13 177 $14 676
Fair Grounds LA Thoroughbred 17.0 20.5 25.0 1401 160 $151 360 $27 322
Fairmount Park IL Thoroughbred 17.0 20.5 25.0 458 60 $10 604 $6667
Fresno Fair CA Mixed 16.77 21.52 21.52 373 49 $43 207 $8088
Great Lakes Downs MI Thoroughbred 17.0 20.5 20.5 832 106 $13 977 $9703
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Harrington Raceway DE Harness 18.0 20.0 20.0 1797 225 $10 207 $11 811
Hollywood Park CA Thoroughbred 15.43 20.18 20.18 2175 296 $289 380 $42 233
Hoosier IN Thoroughbred 18.0 21.5 21.5 3786 409 $38 787 $14 902
Keeneland KY Thoroughbred 16.0 19.0 19.0 622 70 $250 352 $44 800
Laurel Park MD Thoroughbred 18.0 21.0 25.8 4069 511 $72 429 $21 296
Lone Star Park TX Mixed 18.0 21.0 25.0 2751 304 $21 657 $15 771
Los Alamitos CA Mixed 15.43 20.18 20.18 3193 433 $26 589 $16 057
Louisiana Downs LA Thoroughbred 17.0 20.5 25.0 1722 206 $62 207 $11 388
Maywood IL Harness 17.0 20.5 25.0 3067 389 $32 565 $8851
Monticello Raceway NY Harness 18.0 20.0 25.0 4011 542 $9627 $2092
Mountaineer WV Thoroughbred 17.3 19.0 25.0 3788 405 $41 689 $18 076
Northfield OH Harness 18.0 22.5 22.5 5388 633 $22 891 $4368
Oak Tree CA Thoroughbred 15.43 20.18 20.18 1419 168 $308 508 $42 970
Pompano FL Harness 20.5 27.5 27.5 3688 457 $9860 $5348
Retama TX Thoroughbred 18.0 21.0 25.0 1085 123 $36 327 $11 521
Sam Houston TX Thoroughbred 18.0 21.0 25.0 2896 319 $60 005 $18 002
Saratoga Harness NY Harness 18.0 20.0 25.0 2079 270 $5532 $2244
Suffolk Downs MA Thoroughbred 19.0 26.0 26.0 3361 373 $40 356 $14 314
Sunland Park NM Thoroughbred 19.0 22.0 25.0 2519 264 $12 747 $21 052
Turf Paradise AZ Thoroughbred 20.0 21.0 25.0 4588 547 $37 604 $7521
Turfway Park KY Thoroughbred 17.5 22.5 22.5 2136 216 $76 850 $14 240

Source: Takeout rates from Association of Racing Commissioners International, Inc. (2002).
Notes: Balmoral, Fairmount Park and Maywood all charge a 1% surtax on winning tickets.

decreased efficiency as risk increases. However, these
more complicated exotic wagers may attract risk
averse informed bettors who more accurately assess
the probabilities associated with not only winning the
race but also whether or not a horse will finish second
or third, completing a combination for an exotic
wager.
Another important factor that impacts the bias in
a wagering pool is the cost of the wager. The
expected return on a $1 bet at the track is (1
t), so
participants are involved in a negative sum game.
Without any edge, a bettor will eventually go
broke. Therefore, the expected return will influence
both composition of bettors in a pool and its size.
Tracks typically increase the takeout based on the
number of horses in a wager (Tables 2 and 3).
Straight wagers (win, place, show) have the lowest
takeout, an average of 17.6%. The exacta has an
average takeout of 21.0% and the trifecta has an
average take of 23.8%. These differences between
takeout rates might impact efficiency, as higher
transactions costs have been found to increase
biases (Vaughan and Paton (1998a, b). Despite
the increased takeout, the average amount wagered
on exactas ($153 621) and trifectas ($124 815) is
greater than what is wagered to win ($113 750),
place ($37 850) or show ($18 393). Another cost is
breakage, which is the rounding of payouts to the
nearest dime on a dollar returned. This has a
greater impact on high probability and low payout
wagers like the place and show bet because the cost
of breakage is a larger percentage of the bet.
Overall, increased cost of participation should
decrease efficiency.
 The efficiency of exotic wagers
Table 3. Interrelated betting markets
Win
Total betting choices 96 275
Per race betting choices 8.47
Random guess Probability (%) 11.8
E(RET) 0.824
Average pool size $113 750
Information Full
Finally, public information about the prices offered
in each pool should affect efficiency. Prices are
revealed by the tote board, and at any point in
wagering, a bettor will know what the return will be on
a successful win or exacta wager. Place and show pool
totals are shown, but both pay-offs are calculated
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based on the amount bet on all horses that place or
show. A show wager on a particular horse that finishes
in the money will have a higher payout if the other two
horses in the money were longshots. Thus the tote
board only reveals partial information about prices for
the place and show bets. There are no projected pay-
offs of any kind listed for trifecta wagers given the
sheer number of combinations. A bettor is in the dark
about payouts and can only make inferences based on
prices in other pools. It is expected that more
transparency on prices leads to increased efficiency.
Table 3 includes the notable factors discussed above
about the win, place, show, exacta and trifecta wagers.
IV. Empirical Results
The favourite-longshot bias can be detected by
ranking each horse in a race from the most favourite
to the least favourite based on the odds. Horses are
then grouped by favourite position and the average
rate of return on all horses within the group is
calculated. If there is no bias, the return on each
wager would equal (1
t). The win, place and show
pool exhibit the standard favourite-longshot bias,
with lower returns for horses less backed by the
public. As seen in Table 4, betting the first favourite
to win results in a loss of 16.2%. The returns steadily
fall as we move from favourites to longshots with bets
on the seventh favourite earning the worst return, –
34.4%. The place and show wager have a larger range
of returns, with the place return from
8.2% (first
favourite) to
38.3% (longest shot) and the show
return from
7.6% (first favourite) to
42.9%
(eighth favourite). The more pronounced bias in the
place and show pools was previously studied in
Gramm and Owens (2006) and was the motivation
93
Place Show Exacta Trifecta
96 275 96 275 728 314 5 183 970
8.47 8.47 67.4 483.9
23.6 35.4 1.48 0.21
0.824 0.824 0.790 0.762
$37 850 $18 393 $153 621 $124 815
Partial Partial Full None
for the Dr Z system, which uses probabilities from the
more efficient win pool to make profitable bets in the
place and show pool (Ziemba and Hausch, 1984).
We create two categories of wagers involving
exactas and trifectas to compare them to win
wagers. An unweighted bet involves betting the
favourite position to run first with all other horses
weighted equally to finish second for an exacta and
second or third for a trifecta. For an exacta, this is
equivalent to betting 1-ALL where 1 is the race
favourite. In an eight-horse field, this consists of
buying the following seven exactas for the same
amount: 1–2, 1–3, 1–4, 1–5, 1–6, 1–7 and 1–8. Thus,
of the total bet amount, one-seventh or 14.3% is
allotted to each ticket. For a trifecta wager on an
eight-horse race, it is equivalent to betting 1-ALL-
ALL, which is equals bets on 42 combinations: 1–2–3,
1–2–4, 1–2–5, . . . ,1–8–6 and 1–8–7 (1/42 or 2.4% on
each wager). For the exacta, the return is less than the
win wager for every favourite position, indicating it
would generally be unwise to bet an exacta with every
other horse underneath (in the second position). For
the seventh favourite and the longest shot, the loss
>40%. While the exacta returns generally fall as
favourite position increases (at least through the first
seven positions), the trifecta is inconsistent. The
trifecta offers a slightly higher return than the win
wager for fourthand the sixth favourite position.
Our second method of comparing exactas and
trifectas to win wagers is to weight the amount bet
on each combination by the estimated outcome
probability. Within a particular race, for each
favourite position, bets would be allocated based on
the predicted order from Harville (1973) formulas
(Equations 1 and 2). Given horse i is put on the top of
the ticket (winning position in the exacta), the amount
bet on each combination as a fraction of the total is
qj = ð1
qi Þ where q represents subjective win prob-
abilities, n is the number of horses in a race and
j ¼ 1, . . . , n and j 6¼ i. The subjective probabilities are
what the bettors in aggregate feel the horses’ chances
are, as revealed by the odds. Thus, for bets with the
first favourite in the first position of the exacta, the bet
amount on 1–2 will be greater than the amount on 1–3,
 94
which will be greater than the amount on 1–4, since the
second favourite will have a higher probability of
finishing second than the third favourite, which will
have a higher probability of finishing second than the
fourth favourite. For a trifecta wager with horse i in
the winning
position, the  fractional bet is equal to
qj qk = ð1
qi Þ 1
qi
qj , where k ¼ 1, . . . , n and
k 6¼ j 6¼ i. For every favourite position, the return on
the weighted bet offers a better return than the
unweighted bet. This method gives evidence that, in
the second position of exactas and the second and
third position of trifectas, longshots are overbet.
A regression of return on favourite position allows
us to look at the linear relationship between these two
variables (Table 4). Given the favourite-longshot
bias, we expect the slope to be negative. The
regression results for place and show wagers, each
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M. Gramm et al.
The weighted exacta always offers a lower return than
the win wager, and through the first five favourite
positions the differences are small. This lower return
can be explained by the higher track takeout for the
exacta. The trifecta is the anomaly, with insignificant
slope coefficients for both the weighted and
unweighted wager. For the weighted trifecta, the
best rate of return is found on the eighth favourite
(
16.4%) and the second best is on the longest shot
(
17.6%). The weighted trifecta has a lower rate of
return than all other wagers for the first three
favourite positions but a higher rate of return for
everything below. The weighted trifecta offers an
almost 10% higher return over all other wagers on
seventh and eighth favourites and longest shots.
Table 5 looks at exacta combinations by favourite
position. The combinations move from favourites to

have a significant negative slope and have an longshots from the upper left-hand corner of
R2 above 0.95 indicating a very strong linear fit. the table to the lower right-hand corner. The best
Both the weighted and unweighted exacta also have return is earned by betting the seventh favourite over
negative slopes and R2 of 0.82 and 0.88, respectively. the eighth favourite (
6.0%), but this appears to be

Table 4. Rates of return for all wagers

Exacta return Trifecta return

Favourite Win Weighted Weighted Unweighted Place Show

position return (%) Unweighted (%) (%) (%) teturn (%) return (%)
1
16.2
17.3
21.5
24.3
25.1
8.2
7.6
2
17.7
18.3
26.4
23.1
24.5
16.0
13.0
3
21.7
22.0
29.4
24.0
28.4
20.6
15.7
4
21.8
22.3
29.7
19.3
20.2
24.1
22.2
5
24.9
25.2
37.8
21.4
36.3
24.4
22.0
6
27.0
29.7
36.1
22.8
24.8
30.9
30.0
7
34.4
37.0
44.0
25.4
37.4
32.2
33.4
8
25.5
28.9
38.6
16.4
26.4
34.9
42.9
9–14
25.3
33.4
43.5
17.6
31.7
38.3
42.7
Return ¼
0 þ
1 Favourite position
Slope (%)
1.5**
2.2***
2.7*** 0.7*
0.9
3.4***
4.6***
Constant (%)
16.3***
14.9***
20.8***
25.0***
23.8***
8.3***
2.7
R2 0.59 0.82 0.88 0.34 0.19 0.96 0.98
***
significant at the 1% level, **significant at the 5% level and *significant at the 10% level.

Table 5. Exacta wagers

Second place
1 2 3 4 5 6 7 8 9–14
First place 1 x
16.4%
19.1%
18.5%
10.5%
20.5%
21.8%
26.4%
41.4%
2
12.9% x
21.0%
23.3%
20.9%
19.7%
28.3%
38.0%
52.1%
3
20.1%
26.5% x
25.0%
19.8%
35.5%
20.5%
52.8%
42.4%
4
18.0%
20.0%
29.4% x
35.6%
42.0%
26.5%
40.9%
27.5%
5
13.0%
34.3%
28.9%
29.2% x
54.8%
54.9%
44.1%
47.4%
6
29.9%
35.3%
18.1%
33.6%
36.7% x
32.6%
69.9%
41.2%
7
39.3%
34.7%
23.5%
56.8%
46.6%
66.2% x
6.0%
71.4%
8
29.1%
17.8%
28.9%
43.8%
37.4%
37.2%
56.6% x
54.1%
9–14
32.1%
26.3%
22.4%
45.9%
48.2%
60.4%
51.1%
43.2%
56.6%
 The efficiency of exotic wagers 95
Table 6. Trifecta wagers

3rd 1 2 3 4 5 6 7 8 9–14
2nd 1st – 1st
1 x x x x x x x x x
2 x x
26.9%
34.7%
16.8%
21.2%
6.0% 4.2%
56.2%
3 x
31.4% x
39.5%
31.9%
22.0%
10.9%
25.6%
21.3%
4 x
33.9%
22.8% x
41.5%
21.7%
39.5%
48.6%
13.3%
5 x
20.6%
19.5%
11.0% x
20.4% 2.6%
16.2%
12.3%
6 x
24.3%
28.7%
27.3%
31.3% x 15.4%
8.5%
47.7%
7 x
25.1%
18.5%
18.2%
10.9%
36.9% x
34.9%
21.2%
8 x
25.2%
40.2%
38.9% 7.0%
33.7%
17.4% x
58.1%
9–14 x
41.3%
12.9%
57.8%
64.9%
45.9%
16.6%
34.5% 12.8%
1st – 2nd
1 x x
16.5%
20.8%
5.6%
16.7%
27.3%
37.1%
35.3%
2 x x x x x x x x x
3
32.0% x x
27.8%
14.9%
33.6%
15.7%
8.8%
43.7%
4
41.4% x
39.6% x
13.2%
6.0%
28.1%
0.3% 8.6%
5
23.3% x
2.2%
41.0% x
31.8%
14.9%
73.5% 4.5%
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6
38.2% x
31.0%
21.3%
9.7% x 36.3%
17.6%
7.9%

7
17.5% x
45.2%
20.3%
28.3%
56.3% x
36.2%
63.5%
8
53.9% x
7.5%
9.3% 53.6%
54.5% 33.6% x
44.8%
9–14
78.7% x
47.7%
66.4% 110.4%
70.7%
63.5%
75.4%
22.1%
1st – 3rd
1 x
29.1% x
27.4%
33.1% 4.2%
33.4%
51.9%
5.2%
2
34.9% x x
26.7%
13.7%
25.4%
45.9%
40.9%
26.6%
3 x x x x x x x x x
4
33.5%
36.4% x x
0.3%
27.9%
2.7%
52.6%
18.0%
5
8.3%
30.2% x
20.1% x
62.2% 6.4%
2.2% 23.3%
6
34.0%
17.6% x
20.3%
48.3% x
47.2%
31.4%
36.5%
7
29.5%
14.8% x
31.3%
40.3% 33.6% x
16.5%
73.2%
8
20.1%
47.4% x
67.3%
51.7%
77.5%
62.8% x
100.0%
9–14 15.2%
48.3% x 22.0%
30.3%
33.9%
82.2%
20.2%
4.2%
1st – 4th
1 x
27.7%
23.8% x
28.0%
19.0%
34.1% 16.1% 7.9%
2
34.1% x
9.6% x 10.0%
30.1%
25.6%
23.9%
13.9%
3
35.3%
21.7% x x
23.5%
27.7%
5.9%
62.8%
31.5%
4 x x x x x x x x x
5
50.2%
41.6%
40.5% x x
29.0% 66.0%
87.0% 108.8%
6
38.4%
37.2%
59.4% x 6.6% x
33.1%
17.9%
79.2%
7
11.9%
24.9%
13.9% x
49.4%
12.8% x
57.1% 1.3%
8 18.0%
75.2%
32.9% x
26.7%
62.1%
35.5% x
51.4%
9–14 32.1%
6.5% 8.2% x
36.7% 140.2%
91.9%
89.0% 43.6%
1st – 5th
1 x
24.5%
2.9%
21.1% x
3.1% 19.3%
37.8%
20.3%
2
21.3% x
38.2%
37.6% x 21.8%
46.5%
83.2%
1.1%
3
35.0%
29.6% x
11.2% x
45.7%
39.2% 4.6%
49.5%
4
16.2%
19.8%
35.1% x x
23.6%
13.8%
68.5%
13.3%
5 x x x x x x x x x
6
44.2%
36.1%
25.7%
71.6% x x
76.8%
81.3%
68.8%
7
83.9%
6.0%
53.4% 79.2% x
25.1% x
100.0%
89.5%
8
58.2%
11.0%
12.4% 11.8% x
74.9%
92.9% x
89.1%
9–14
59.9%
24.5%
31.3%
53.4% x
82.1%
100.0%
13.4%
52.9%
1st – 6th
1 x
45.2%
12.4%
20.5%
16.0% x
22.4%
1.2%
31.5%
2
42.8% x
37.8%
14.8%
46.6% x 16.3%
23.5%
59.4%
3 4.4%
20.1% x
32.7%
51.6% x 42.0% 17.1% 7.8%
4
25.9%
29.3%
29.1% x
2.7% x
80.1% 71.3%
67.0%
5
46.5%
23.0% 16.5%
29.4% x x 2.2% 72.4%
72.2%

(Continued)
 96 M. Gramm et al.
Table 6. (Continued)

3rd 1 2 3 4 5 6 7 8 9–14
6 x x x x x x x x x
7
29.1%
17.5%
34.5%
78.8%
68.8% x x 73.9%
90.2%
8
65.2%
100.0%
100.0%
3.9%
69.2% x
73.8% x
39.3%
9–14
51.1%
33.8%
49.8%
100.0%
100.0% x 4.7%
100.0% 264.2%
1st – 7th
1 x
44.3%
17.1%
52.2%
46.4%
56.3% x 39.9%
71.5%
2
39.4% x
19.6%
7.0%
54.6%
42.6% x
57.8% 22.4%
3
6.7%
30.4% x
54.2% 4.8% 61.1% x
63.4%
34.8%
4
7.6%
55.9%
70.1% x
61.8% 22.4% x
40.5%
39.7%
5
32.9%
80.0%
3.0%
76.0% x
59.8% x 72.5%
100.0%
6
61.3%
58.6%
19.2%
77.9%
56.1% x x
100.0%
81.1%
7 x x x x x x x x x
8 44.5%
62.9%
50.4%
26.4% 318.9%
100.0% x x
100.0%
9–14
81.0%
100.0% 4.1%
80.8%
25.0%
79.6% x
100.0%
69.8%
1st – 8th
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1 x
40.2% 49.8%
30.2%
81.3%
31.9%
15.5% x
3.8%

2
17.0% x 50.6% 6.3%
60.6% 17.2%
18.8% x
82.2%
3 5.0%
69.4% x 20.9%
27.9%
55.6% 99.3% x 155.5%
4 15.6%
7.5%
71.9% x 17.8%
94.0%
69.8% x
100.0%
5
79.8%
3.8%
71.8%
12.5% x
27.2%
82.3% x 150.7%
6
14.6%
35.4%
1.2%
100.0% 14.7% x
100.0% x
60.8%
7
30.4%
100.0%
43.6%
82.6%
50.2% 87.2% x x 61.6%
8 x x x x x x x x x
9–14
63.9%
33.3% 40.5%
75.8%
34.4%
100.0%
94.9% x
100.0%
1st – 9–14
1 x
38.0% 44.9%
60.8%
26.8% 2.6% 43.4%
55.1%
58.6%
2
55.2% x
41.2% 42.1% 59.3% 136.7%
77.1%
70.8%
28.6%
3
80.2%
15.4% x
19.8% 90.1%
11.7% 92.4%
27.7%
36.3%
4
7.8%
32.4%
57.9% x
46.0%
37.0%
41.2%
28.7%
100.0%
5
32.0%
87.7% 68.5%
73.4% x 124.2%
60.1%
100.0%
60.0%
6
56.5% 61.5%
61.7%
93.5% 20.2% x
100.0%
39.7%
7.4%
7
100.0%
69.9% 2.6% 26.1%
100.0%
61.2% x
16.9%
29.2%
8
11.1%
49.0%
100.0%
47.1%
100.0%
100.0%
46.0% x 47.6%
9–14
67.0% 93.6%
84.4%
52.5%
100.0%
32.7%
75.1%
100.0%
16.7%

Note: The numbers in bold denotes the returns that are positive.

an outlier. Of the 8056 races with 8 or more horses
competing, there were only 18 combinations with the
seventh favourite finishing first and the eighth
favourite finishing second. The average $2 return on
these winning wagers was $841.70. All other combi-
nations with losses less than 20% each involve the
first favourite: 1–5, 1–2, 5–1, 4–1 and 1–3. More than
one-third of all combinations have losses >40%.
Especially, overbet combinations include exactas with
the longest shot underneath (finishing second). Eight
of the nine have losses >40% and four of nine have
losses in excess of 50%.
Table 6 contains pay-offs for trifecta wagers by
favourite position. This table is really composed of
nine different tables, one for each favourite position
2
There were eight winning tickets with the 5–2–7 combination from 9908 bets.
in the first position on a trifecta ticket. The first eight
sub-tables contain 57 cells, with no observations for
favourite position overlap with the exception of the
catch-all longest shot (9th through 14th). For
example, the return on a 5–2–7 trifecta, where the
fifth favourite is first on the ticket, the second
favourite is second and the seventh favourite is
third, is
46.5%.2 The last sub-table with the longest
shot in the first position in the trifecta has 73 cells.
In 85 of the 529 cells (16.1%), the return is positive
(denoted in bold in the table). While this might be a
sign of an exploitable bias, the result is probably due
to the size of the dataset. Despite the fact that our
data contains over 10 000 races and thus over 5
million trifecta combinations, these are probably too
 The efficiency of exotic wagers
few to break down the data this far. A majority of the
positive returns are found when longshots are in the
first position of trifectas. Many of the positive returns
in the last three sub-tables are a result of just a
few winning tickets. The highest return in the table,
318% on the 7–8–5 combination, comes from just
five winning tickets from 8163 different bets. The
evidence for trifectas is ambiguous and needs further
research.
V. Conclusions
This article is a comprehensive look at the pricing of
single race exotic wagers. Using a large dataset of
U.S. races from 2002, we compare win, place, show,
Downloaded by [Georgia Tech Library] at 06:11 12 November 2014
exacta and trifecta wagers on return by favourite
position. The win, place and show wagers exhibit the
standard favourite-longshot bias, with longshots
overbet relative to favourites and thus offering a
lower return. The bias is more pronounced in the
place and show pools. To allow for the comparison
with the exotic wagers, the second place position for
exactas and the second and third place position for
trifectas are either given equal weight or weighted
according to the estimated outcome probability.
Weighted exactas and win wagers are very similarly
priced with win wagers offering a slightly higher
return, probably a result of the lower takeout.
Trifectas are unusually priced and results indicate
no favourite-longshot bias but little evidence that
these wagers are priced efficiently. Breaking down the
exactas and trifectas one step further by combina-
tions based on favourite position, exactas once again
display the characteristics of a standard favourite-
longshot bias, with, in most cases, substantial losses
in longshot combinations. The trifecta results had a
good proportion of bets with positive returns, but this
was likely driven by sample size limitations. The
trifecta results indicate a need for further study.
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