Tuesday, January 27, 2004
Just Too Cool
A study I've always wanted to conduct is whether betting lines on football games inadvertently lead to profit-making decision rules like "always bet the favorite (or underdog)" or "always the home (or away)" team. Of course, the answer is "NO" because then bookmakers would lose money because anybody could follow that stupid of a strategy. But, the fantasy exists that you could still outsmart the bookmakers with some relatively simple set of rules.
Well, one of the coolest economists in the country, Steven Levitt at the University of Chicago, has done this study (and more) and confirms that the answer is NO, but also presents some interesting information that suggests setting the betting line is about more than equalizing wagers on both sides of the line. This had been my traditional understanding: the betting line is a price such that equal dollars are bet on each side; if a flood of new money comes in on one side or another, the line will change to make the other side more favorable.
In fact, it turns out that bookmakers are quite skilled at picking a line such that they earn higher returns than just the vigorish (the commission on losing bets) and that bettors in this particular sample do no better than flipping a coin. This is not to say that there are not particular opportunities to beat the bookmaker, just not enough to make it profitable.
If you get a chance, read his other stuff; he does really amazing work.
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