Bookmaker's dilemma

Abstract

In this paper, a game between two bookmakers is analysed. The simple game involves high or low odds strategies for each bookmaker, and an inherent Prisoner's Dilemma structure is revealed. However, this structure may be partially resolved given parametric changes in pro t structures that might lead to a “Stag Hunt Game". An argument for possible bookmaker arbitrage is added. Although this argument is well known, it is sparsely treated in research literature. A proof of the necessity of di ering beliefs between gamblers to obtain bookmaker arbitrage is added.