The market for betting on the difference in the account is one of the most popular markets for betting players. Despite the fact that this market is called upon to equalize the chances for participating teams in a certain way, the bookmaker may want to make it not as “fair” as it should seem to us. Do bookmakers choose to bet on different markets in the account? Read the article and find out the answer to this question.
In 2005, Stephen Levitt (economist and co-author of the book “Freakonomics”) published an authoritative scientific article in which he called into question the generally accepted view of the effectiveness of betting markets, the collective wisdom of betting players and the earning of bookmakers solely on the receipt of a commission for streamlining actions.
According to Levitt, the situation is completely different: bookmakers prefer to take high-risk positions (taking into account the expected outcomes of matches), and therefore the coefficients published by them, after subtracting the margin, deviate from fair or equilibrium values for the market, depending on a retrospective analysis of the results. They perform such actions to achieve large volumes of profit, systematically exploiting the bias of players with a lower level of competence in predicting the outcome of games, as well as acting less rationally than bookmakers.
See also: Compare bets of the same size and proportional bids
Presumably, Levitt came to this conclusion due to two important observations. First: for the NFL season 21, between 1980 and 2001, only 48.2% of the favorites managed to cover the difference in the score (in order to balance the odds for both teams in the bets, a handicap with a negative value was applied to the favorites). Second: in the competition for placing bets on NFL games, 285 participants placed 19,770 bets on the outcomes of 242 different games (2001 season); 60.6% of these bets were placed on the favorites of matches. If such a level of disproportion in favor of betting on a favorite would be typical of the real market environment, then these two conclusions could not coexist on the same plane with the traditional role of a passive market maker.
Before further consideration, it is necessary to note the presence of several factors. First, the sample of players studied by Levitt was rather small. Secondly, the players regarded what was happening as a competition, and not as bidding in the real market. Thirdly (which logically follows from the two previous paragraphs), we do not have any information about the ratio of money placed in the form of bets – bookmakers never disclose such data, which, however, is not surprising. The value of 60.6% refers to the number of bets, and not to their share in the total, and these two values do not necessarily correlate with each other. Finally, Levitt performed an analysis of only one market.
In this two-part article, I will try to expand his analysis by including in it the market for betting on the difference in the score for NBA matches – we will try to understand whether bookmakers really choose their side. If in reality, this is the case, then this has far-reaching consequences for the efficient market hypothesis, which claims that the odds are a reliable measure of the true probability of the outcome of an event. In the second part of the article, I will examine the market stakes on the difference in the score for NBA matches in the context of whether they correspond to Levitt’s conclusions. In the first part, I will begin by studying how the state of affairs really looks when a bookmaker chooses his side.
Small thought experiment
Imagine a simple competition with two opponents (team A and team B), the probability of victory for each of them is 50%. Thus, fair odds for any of them are 2.00. Now let’s assume that the bookmaker applies a 2.5% margin with a uniform distribution, reducing the odds for each participant to 1.95. For each of these contests, we will find 100 players placing 1 US dollar on team A or team B. Finally, suppose that 100 such contests are held, so that the total turnover becomes equal to 10,000 US dollars. What profit can a bookmaker expect depending on a change in the proportion of bets on teams A and B or the frequency of victories of these teams?
Impact on market performance
From Levitt’s conclusion that bookmakers do not engage in passive commission earnings, they actively perform risky manipulations, taking into account the preferences of their customers and appropriately juggling offers on the market for betting on the difference in the account to increase their profit, it follows that their odds cannot be effective with a fair reflection of the true probabilities of the outcome of the event. On the other hand, what should be expected if the odds for betting on the difference in the account, assuming a 50% chance of success, allow the bookmaker to achieve the desired result only in 48% of cases?
Read also: Are you serious about placing bets?
We should remember that Levitt’s analysis data has been outdated for more than 20 years. In the world of online sports betting, much has changed since then. We have more bookmakers, more players, more predictive models, more markets, more money – most. In markets associated with a relative level of excellence, a higher level of competition should usually involve moving toward greater efficiency and more accurate ratios using a process called the excellence paradox.
Levitt’s suggestion that sports betting is unlike the financial market is not far from the truth: action coordinators prefer to become part of these actions to increase their profits. Analysis of more recent data supports this hypothesis. In the second part of this article, I will try to continue my research by looking at the market for betting on the difference in the score for the NBA.