EconPapers: Steven Levitt (February 24, 2004)
Some interesting abstracts.
Bookmakers are more skilled at predicting the outcomes of games than bettors and are able to systematically exploit bettor biases by choosing prices that deviate from the market clearing price.
--posted by TangoTiger at 01:45 PM EDT
Posted 5:33 p.m.,
February 24, 2004
(#1) -
tangotiger
(homepage)
More from Levitt, including the penalty-kick paper.
Posted 5:33 p.m.,
February 24, 2004
(#2) -
tangotiger
(homepage)
More from Levitt, including the penalty-kick paper.
Posted 7:59 p.m.,
February 24, 2004
(#3) -
Fish Teaser
I scrolled through tango's link and the list of articles but I didn't see anything relating to his assertions about baseball. Am I missing something, or is this link just for the sake of admiring data in other realms?
Posted 11:48 p.m.,
February 24, 2004
(#4) -
Alan Jordan
It's actually about soccer, at the bottom just under the number 4. heading. What's cool is that the first reference is from John Nash "Beautiful Mind". It's testing Nash's equilibrium (which won him a Nobel prize in Econ) in Soccer.
Posted 6:54 a.m.,
February 25, 2004
(#5) -
tangotiger
Fish: this forum is not limited to baseball, though the emphasis is baseball.
If you check out the index that I compiled, you will see a handful of links on other sports, as well as statistical concepts.
Posted 4:33 p.m.,
February 25, 2004
(#6) -
tangotiger
Fish said: Am I missing something, or is this link just for the sake of admiring data in other realms?
Did you read the soccer link? I just finished reading it. It's fascinating stuff. This is a great example of game theory, with a minimal number of variables at play (unlike say the pitcher/batter matchups). I look forward to reading a few more of Levitt's links. The application of his methods can certainly be translated in some form to baseball.
To answer your question: no, it's not just for the sake of admiring "data" in other realms. It's for the sake of enjoying, and perhaps even learning, expressions of ideas beyond baseball. And, if we're lucky, applying them to baseball.
Posted 4:57 a.m.,
February 29, 2004
(#7) -
Joe Dimino(e-mail)
"Bookmakers are more skilled at predicting the outcomes of games than bettors and are able to systematically exploit bettor biases by choosing prices that deviate from the market clearing price"
I disagree with this - bookmakers set the price where the action will be equal on both sides, and they charge a premium for 'purchasing' either side, this premium is the only thing that makes it profitable to be a bookmaker in the long run. They will (contrary to what this article states) move the price if too much action comes in on either side. Sometimes the move the line, other times the raise the premium for one side while lowering it for the other. They'll use the latter technique if the 'number' is one that could cause them to lose on both sides by moving it, like a 3 point line in a football game, for example.
Am I missing something, or did I read the article incorrectly?
Posted 8:50 p.m.,
February 29, 2004
(#8) -
Hatrack Hines
I ponied up the $5 for the PDF file. In summary, Levitt acknowledges the "split the action" strategy that conventional wisdom attrbitutes to bookmakers. He claims that the bookies are better handicappers than the gamblers are, and the books use their edge to to set the lines such that most of the money will be on the losing side. He says the bookmakers make twenty to thirty percent more this way.
His study and data looked good to me, but it's certainly possible that I (and he) are mistaken. Do bookmakers themselves ever explain how they set lines? Should we believe them?
Posted 10:08 p.m.,
February 29, 2004
(#9) -
Alan Jordan
Joe,
Remember that most gamblers use intuition rather than complex models and inside information to make their decisions. There are some quantity of gamblers that can handicap the games better than the bookies, but as long as they are the minority, they're not a problem. It's not a contradiction for there to be a group of gamblers to be better than the bookies, but the bookies to still better than the gamblers on the whole.
Posted 1:50 a.m.,
March 1, 2004
(#10) -
Brad Wenban
Given that bookies can also bet, if a bookie sets the odds at some position other than the bookies' expected outcome, other bookies could make money by placing bets with that individual.
Every time bad bettors drive the odds from the good bettors' expected outcome, the good bettors should increase their betting activity to capitalize on this free money. Right?
Posted 4:01 a.m.,
March 1, 2004
(#11) -
AED
Only if the line becomes sufficiently skewed that the odds of winning the bet are high enough to make it worthwhile. I don't recall the exact amount, but bookies take a "commission" of sorts, so that you have to bet something like $1.10 to have the chance of winning $1.00. Statistical models can beat the odds, even with the overhead costs, but it's only about a 5% profit margin on highly volatile transactions.
Posted 12:05 p.m.,
March 1, 2004
(#12) -
Jim
As I recall, the bookies don't actually set the initial lines themselves, they subscribe to a service that does this for them. Las Vegas Sports Consultants does this service for the majority of books. Sports Illustrated did a fascinating story on this company a few months ago. The individual books then move their lines depending on the action they get.
I'd guess that the guys at LVSC are better handicappers than 99.9% of gamblers. They have to be--it's their profession. And likewise, it's nearly impossible to beat the sports books on a consistent, long-term basis.
Posted 12:37 p.m.,
March 1, 2004
(#13) -
Hatrack Hines
Jim and AED hit the nail on the head. The bookies are as good at forecasting as anyone is likely to be (notice that they're always near the top in Diamond Mind's prediction recaps) and the vig (commission) cuts deeply into any edge bettors could gain by exploiting the "inefficient" lines. You might be able to squeak out an edge, but it won't be much, and it's highly volatile.
Posted 3:41 p.m.,
March 1, 2004
(#14) -
f_k_a Scoriano
What is a Nash Bayesian approach?
Posted 8:26 a.m.,
March 2, 2004
(#15) -
AMBA
(homepage)
Nash Equilibrium (information taken from homepage):
-The hallmark of strategic interaction is interdependent payoff functions, i.e. my profits depend on what my rivals do. Game theory has made great strides in characterizing the outcomes of strategic interaction. A game's outcome is likely to be the Nash Equilibrium of the game.
-Nash equilibrium is an outcome (sometimes unique, sometimes not) in which every player is acting optimally, rationally, and in their own self interest. To check to see if a given outcome is a Nash Equilibrium, check to see that no player can unilaterally do better by changing their strategy.
Posted 3:19 p.m.,
March 2, 2004
(#16) -
Noffs
I wonder just how in depth line-setters go. I suspect that using day/night, home/road, left/right splits, one could do pretty well on baseball.