The representative bettor, bet size, and prospect theory

Models of representative bettors have ignored the decision on the size of bet that a gambler takes. By modelling bet size, the favourite-longshot bias observed in many pari-mutuel betting markets is shown to be consistent with both: (i) a representative bettor taking decisions, according to prospect theory, based on standard shaped value and weighting functions, and (ii) the bettor simply being risk loving for gains and risk averse for losses.