Wisdom of the Crowd – Part 3

So far, we have looked at the concept of crowd wisdom and how it applies to Betfair markets, and their long-term accuracy.

We’ve also seen, though, that crowds can sometimes fail – especially where they lack diversity, independence, and decentralisation – and that often, simply taking a contrary opinion to the majority can be enough to profit.

The challenge for punters, then, is to be able to identify, in advance, where the conditions are ripe for such a market failure.

One option is to think about markets whose participants lack diversity and are not decentralised.

Take tennis.  If you bet on the men’s final at the Australian Open this year, between Roger Federer and Rafa Nadal, you were likely competing with thousands of other punters, from all around the world.  If Surowiecki is right, it is likely that the odds were an accurate reflection of chance.  You might, therefore, have bet in that market and won, but advocates of crowd wisdom would argue that, eventually, betting in similar markets would make it hard to return a long-term profit.

However, betting in the early stages of the women’s draw at the Sydney International, a few weeks before the Australian Open, is likely to see you competing against far fewer punters, from a much closer-knit group, suggesting that the market might not be so accurate.

This perhaps explains why most professional punters specialise: if they develop quantifiable methods of analysis that allow them to correctly assess probability in a niche area, then they can outperform the market, because that market is not big enough, nor diverse enough, to be perfectly predictive.

Another option is to think about markets that lack independence, especially of information.

In the run-up to the Rugby World Cup final in 2015, the Australian TAB reported a huge weight of money for Australia, at $3.00, to beat New Zealand, especially in the last 24 hours before the final.  This is despite the odds on an Australian win being $3.60 on Betfair.  This pricing rick can be explained by what is sometimes called patriotic punting: bettors being driven by the emotion of wanting to see their nation prevail and betting accordingly, often striking their bet close to the event.

Examples like this are seen the world over.

The odds on most national soccer teams shorten in local betting markets in the minutes before kick-off and they demonstrate a lack of independence in participating punters, as they are all effectively acting on the same piece of “information” – I want my country to win and therefore they will win.

Aside from the influence of patriotism, a narrow range of information can artificially skew many other markets, especially where the media has influenced public opinion.

An unusual example of this can be found in markets that ask punters to bet on the highest temperature likely to be reached in a summer.  In recent years, the odds available on the highest temperatures in those markets have been shortening.  To many punters, this would seem to make sense.  After all, there is a scientific consensus that the world is heating up, year-on-year, and the media is full of stories of freak weather events caused by global warming.

However, global warming is based on measures of average temperatures, and whilst these have been increasing, this has not always correlated with a continued increase in the record high-temperature reached in any single country in a single year.  The record high temperature in Australia, for example, was recorded in 1960.

A would-be profitable punter, then, is well advised to seek markets that are likely to be inefficient because of a lack of diversity, independence, and decentralisation – provided they have the means to operate within those markets in a more accurate way than the majority.

The usefulness of understanding the wisdom of crowds doesn’t stop with helping punters choose the markets to bet in, though.  Its principles can also be used to help any punter improve their own decision-making processes.

Many researchers have investigated whether trying to replicate the conditions of the crowd as an individual can provide similar levels of predictive accuracy.  The idea is that you adopt mental processes that force your decision-making to consider more than one answer, creating a “crowd within”.

In one study, participants were asked to make two estimates in answer to a question, over a timespan of three weeks, giving average answers consistently more accurate than either of their two specific ones.  In other studies, participants who were asked to consider contrary-but-plausible answers to questions were similarly able to improve their accuracy.  Very recent research has successfully experimented with a fascinating approach that sees participants averaging their own guess with what they think the popular view will be. Read More

The research behind methods that try to harness the “crowd within” is not compelling: there are varying levels of accuracy reported in different studies, with some reporting limited benefits to the methods employed.  Part of the difficulty for researchers is in pinpointing the type of answers that such techniques are best at predicting, and it is likely that we are someway off being able to quantitatively apply these models-of-thinking to punting.

Nonetheless, the principle of adopting a humble mindset when punting – where are the areas that my analysis might be wrong? – must be valuable.

Arrogance is never an ingredient in a successful betting strategy,

and if the wisdom of crowds tells us anything, it’s that we should at least be mindful of this when placing any bet.

About The Author – Jack Houghton 

As a passionate sports’ fan and punter, Jack has written about sports and betting for over a decade, winning the Martin Wills Award for racing journalism in 2002 and writing Winning on Betfair for Dummies, first published in 2006 and now in its second edition, having sold over 35,000 copies in two languages.

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