The Bookmaker Trap

In January 2018, a betting story was doing the rounds that made the pages of some international dailies.  It involved a mysterious punter who had placed an $800 bet at $251 on Hyeon Chung winning the Australian Open for a potential pay out of over $200,000.  The story was noteworthy because Chung had just beaten Novak Djokovic to reach the quarterfinals, where he was due to play fellow outsider, the aptly-named Tennys Sandgren.  Chung eventually withdrew injured in a semi-final match-up against Roger Federer.

In much the same way that PR departments in Las Vegas casinos will do all they can to promote the story of the everyday Joe who became a millionaire, the media arms of bookmakers will press the press to write-up betting stories of the Chung-type.  Not only do they provide a free company name-check, but they also implant the idea among the populace that anyone can win big.

For any punter, reading stories like the one about the Chung bet is illustrative of some of the traps that punters can fall foul of when assessing historical bets.  The stories usually include reference to something that the punter in question “knew” that others didn’t, how “predictive” the punter is, and may even include commentary by the punter themselves explaining the rationale for their life-changing bet.

This kind of coverage provides an example of outcome bias, where the way we value the decision-making that led to a bet is skewed because of what we know about the bet’s outcome.  We tell ourselves that the bet must have been a good one because events have proven it to be so.

The reality of whether the $800 staked on Chung at $251 was a sound investment or not is much more complex.  One might argue that, because the bet ultimately lost, it couldn’t have been that good.  This thinking, though, is just as sloppy as that which is promoted by the media coverage of the Chung bet: it is overly influenced by what we know about the bet’s result.

What Does Human Nature Say?

In 1988, the psychologists, Jonathan Baron and John Hershey, from the University of Pennsylvania, provided some of the best evidence of the existence of our cognitive bias to overly consider the outcome of a decision when assessing how good that decision was.  In five separate studies with university students, they asked subjects to evaluate a series of decision-making scenarios, based on medical and gambling choices.  Subjects were given access to the information that led to decisions, and to the outcomes of those decisions, with those asked saying that they shouldn’t consider the outcome of the decisions in their thinking.

Of course, they did.  Even when the outcome was obviously based purely on chance, such as when subjects were asked to draw a card from a deck, with red winning $20 and black winning nothing, subjects were more likely to rate the decision as better when it predicted the eventual outcome.  What’s more, subjects would rate the successful decision-maker as more competent and, perhaps most scarily, be more likely to yield future decisions to that person.

The existence of this bias has potentially serious ramifications for punters.

First, it demonstrates that we need to be careful of any assessment of our own skill.  Anecdotally, many compulsive gamblers will describe how they remember winning their first bet and were hooked by the excitement and possibility of it all.  How many of them were inculcated at that early stage by an overconfidence in their own ability because of the outcome of that first bet?  This exemplifies why religiously recording your bets and tracking their outcome is so important.  Whilst individual wins might boost your betting self-esteem, the stark evidence of an indebted profit-and-loss account makes it harder to deceive yourself.

Second, it warns us of the dangers of overvaluing the pronouncements of experts.  Type into a search engine the phrase, “successfully predicted the financial crash”, and you will find numerous experts touted for their prescience around the 2008 global financial crisis.  Their book sales have been strong, and their booking agents have been busy, in the years since.  Of course, even the crazy guy on the street corner will look smart for predicting the end of the world the day after it happens, but it doesn’t mean his pronouncements are based on sound decision-making.

“Long-term profitable betting is all about carefully assessing imperfect information, and doing this better than the market average.”

It is not about marvellous and unlikely predictions that lead to large payouts.  As a $251-shot, players like Hyeon Chung can be expected to win a tournament of Australian Open status around one-in-every-250 times they are staged.  So, it’s no great surprise that he got to the semi-finals.  And that’s not to say that it was a bad bet, or a good one.  With the benefit of hindsight, as Chung has continued to play well on hard courts through the 2018 season, it looks like the market did undervalue him.  But then hindsight makes lots of things clearer.

Whilst the results of bets are binary – you either win or lose – decisions around bets are probabilistic.  In other words, you use the best information you’ve got at the time to calculate the chance of different outcomes.  If you gauge that a particular outcome has a 60% likelihood, then it is a good bet if the odds you are offered are greater than $1.67, and becomes an even better bet as those odds grow.

(If converting odds to implied percentage chances is new to you, it’s straightforward.  Simply divide 1 by the decimal odds to see what the implied chance is.  Conversely, divide 1 by the implied percentage chance to see what the odds should be.  In the example above, 1/1.67 = 0.6 (60%), and 1/0.6 = 1.67 ($1.67))

“The key, of course, is to develop your sources of information, and this takes some hard graft.  Long-term profitability is usually hard-won.” 

Creating ratings’ systems, carefully considering staking plans, monitoring your bets, and constantly reviewing your performance in an unbiased way.  It’s not about punting big on a little-known South Korean tennis player in the hope they pull off the biggest grand-slam upset in history.

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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