The house doesn’t always win: Evidence of anchoring among Australian bookies

• We examine bookies’ responses to the natural experiment of late-scratching horses.
• We test if bookies systematically under-adjust the remaining odds after a scratch.
• After various controls, we find that bookies fail to fully recover profit margin.
• Bookies recover only 70–80% of lost profit margin after a late scratch.

We examine Australian horseracing bookmakers’ responses to late scratches, instances in which a horse is abruptly withdrawn after betting has commenced. Our observed bookies exhibit anchoring on the original odds and fail to re-adjust odds fully on the remaining horses after a scratch, thereby earning lower profit margins and occasionally creating nominal arbitrage opportunities for bettors. We also examine which horses’ odds bookies adjust after a scratch and demonstrate diminished profit margins even after controlling for these endogenous adjustments. Our results indicate that bookies’ adjustments recover approximately 80% of lost profit margin but that bookies forgo the remaining 20% due to systematic under-adjustments.