Archives for February 2018


Economic thought and model building traditionally stipulated the premise that individuals approach their decisions rationally by maximizing personal utility, like automatons calculating the best outcomes.  Then, the empirical work of two Israeli psychologists, Daniel Kahneman and Amos Tversky, challenged this view and the fields of behavioral economics and behavioral finance were born.  Kahneman won the Nobel Memorial Prize in Economic Sciences in 2002 for his work and Tversky would likely have done the same had he not died (the winner must be living).  In 2017, a proponent of the Kahneman/Tversky approach, Richard Thaler, also won the Nobel Prize for integrating economics with psychology in human decision making.

Kahneman’s contribution was explained in part by the Nobel Society:

“One could call Daniel Kahneman the unicorn of economics.  As a psychologist, he had a profound influence on people who criticized the homo economicus (the theoretical notion that our economic decisions are always perfectly rational), instead showing how people actually make decisions.  His insights forever changed the field, paving the way for what’s now called behavioral economics.”

From time to time, Horse Racing Business will examine concepts from behavioral finance within the context of wagering on horse racing.  Today’s article considers the rudimentary idea assumed by conventional economic models that decisions made by individuals are “transitive.”  That is, in making choices, if A is preferred to B and B is preferred to C, then A should be preferred to C.

For simplification, suppose an experienced bettor, Alex, is looking at an upcoming three-entry race, a $16,000 claiming race for colts and geldings 4-years-old and up.  Further, assume Alex has all the public information (published past performances) at his or her disposal.

Without taking odds into account, Alex thinks the three horses should finish in the following order:

White Lightening, Power Play, and Game Changer.

In other words, all else being equal, White Lightening has a better chance to win than Power Play and Game Changer, and Power Play should beat Game Changer.

But all things are not equal because the horses have different odds.  White Lightening is 4/5, Power Play is 3/1, and Game Changer is 10/1.

Alex decides to place a straight exacta bet with Power Play over Game Changer.

Another individual, Bob, has never been to a racetrack before and knows nothing about deciphering past performances or handicapping.  After a friend explains what an exacta is, Bob glances at the horses without consulting even the program and elects to make the identical bet as Alex.  His friend makes the bet because neophyte Bob doesn’t know how to do so.

Does this exacta bet violate the principle of transivity?  Horse B is preferred to Horse C (and bet that way) but both B and C are preferred to Horse A (and bet accordingly).  Have Alex and Bob made irrational decisions?

This question will be discussed in a Sunday post (February 25th) on Horse Racing Business.

Copyright © 2018 Horse Racing Business


While those outside of the UK and Ireland may have some knowledge of the Cheltenham Festival, it is perhaps not truly appreciated just how important it is within British racing circles.  It is the premier event in National Hunt racing, although the Grand National probably attracts more attention as an individual event.  The fact that it is simply referred to as The Festival tells you all you need to know about its standing among racing fans in the British Isles.

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Wagering this year is expected to be at an all-time record, with a projected £250 million ($350 million) to be bet.  Anticipation for Cheltenham is always intense, with trainers, jockeys  closely scrutinized in the run-up to the opening day on March 13.

Bookmakers are notoriously competitive too, offering plenty of free bet promotions and racing offers. You can see a list of the best offers at

Champion Day kicks off the Festival.  It features four Grade 1 races, as well as three other high-quality contests.  The highlight is the Champion Hurdle, a race run just over 2 miles and featuring 8 hurdles.  Buveur D’Air was the 2017 champion and current race favorite at 1/2 (-200), but may face opposition from Faugheen at 6/1 (+600).  Other important races on Day 1 include the Supreme Novices Hurdle, the Arkle Chase and Mares’ Hurdle.

The second day of the Festival, often referred to as Ladies’ Day, is all about the Queen Mother Champion Chase, although there are six other competitive races. The Champion Chase has played a big role in shaping Cheltenham’s recent history and has seen some spectacular races in the past.  In 2018, Altior, currently priced at 5/4 (+125), is expected to add the race to his stellar resume, but Min at 3/1 (+300) has found his form again recently.   Other races to catch on Ladies’ Day include the Ballymore Novices’ Hurdle and the RSA Chase.

A friendly rivalry between Irish and British is part of the Cheltenham magic.  The penultimate day of the Festival is named St. Patrick’s Thursday in honor of the Irish connections to Cheltenham.  But it’s not just an empty gesture, either:  Irish-trained horses took six out of the seven races on St Patrick’s Thursday last year.  The main event is the Stayers’ Hurdle, the premier long-distance hurdling event in British racing.  There is no heavy favorite, but many pundits fancy Sam Spinner at 9/2 (+450).  Day 3 also hosts the Ryanair Chase and JLT Novices’ Chase.

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The Festival concludes on March 16 with Gold Cup Day, named after the most important event of the week, the Cheltenham Gold Cup.  It has seen legendary winners in the past, such as Arkle and five-time winner Golden Miller.  This year, most of the betting chatter has surrounded Might Bite, who won the King George VI Chase in December.  He is available at odds of 3/1 (+300), but the race can be notoriously tough on favorites, so there may be value in the some of the outsiders.  Other Grade 1 races on the final day include the JCB Triumph Hurdle and Albert Bartlett Novices’ Hurdle.

Copyright © 2018 Horse Racing Business


Effective with the October 2017 meet, Keeneland Racecourse increased the takeout percentages on most bets to the maximum allowed by Kentucky law.  Led by the Horseplayers Association of North America (HANA), a boycott ensued…and aggregate handle declined 8.7 percent compared to the same meet in 2016.

Keeneland recently announced a rollback on the takeout percentages on some bets that it previously raised.  Win, place, and show wagers will revert to the old rate of 16 percent from 17.5% and exactas will be reduced to 19.5% from 22%, which is a half percentage point increment over the former rate of 19%.  Other exotic wagers are to remain at 22% and the pick five will continue at 15%.

In October of 2017, Horse Racing Business published two articles on Keeneland’s takeout increases and wrote in part:

“Whether Keeneland’s decision to raise takeout rates on its customers proves to be profitable or a mistake won’t be determined at its October 2017 meet.  A clearer picture will emerge toward the end of Keeneland’s spring 2018 meet, after time has passed since the takeout-rate increases and boycotters have either stayed away or come back.”

Now that Keeneland has partially reversed the pricing decisions implemented at the October 2017 meet, it will be interesting to see if the compromise is enough to placate disgruntled bettors and thereby turnaround the decline in handle the track experienced.

Keeneland management may have intended from the start to raise takeout rates and then subsequently to lower some of them to give the appearance of responding to bettors’ concerns.  A more likely explanation is that management was alarmed by the intensity of the bettor backlash–and the resultant decrease in handle–and decided it could not take the chance of the ill will spilling over into the April 2018 meet.

Raising prices in a low-inflation environment is not easy for any company, but Keeneland vastly exceeded reasonable boundaries when it boosted the takeout rate on exotic wagers by nearly 16% (from 19% to 22%), given the underlying inflation rate in the economy of less than 2%.  Moreover, management has left the huge increase in place for trifecta and superfecta bets.  That may be difficult for many bettors to accept.

How much betting money comes back to Keeneland in April remains to be seen.

Copyright © 2018 Horse Racing Business