His book takes as its source inspiration a 1907 article by Francis Galton, submitted to the journal Nature, which describes how nearly 800 participants, when asked to guess the weight of a slaughtered and dressed ox, were accurate to within 0.8% of the real weight, when considering the “middlemost” (median) number.

Surowiecki goes on to provide many examples of where crowd wisdom has trumped the perceived insight of experts, including the use of markets within the betting exchange to predict the outcomes of elections, which he claims have outperformed traditional polling methods in their prescience.

Surowiecki’s book captured a surge of interest with Galton’s theory, which has seen academics and policy makers researching ways to apply the wisdom of crowds to challenges as diverse as the movement of pedestrians to the prevention of genocide.

As punters, fully understanding the observed phenomena of crowd wisdom is crucial. After all, betting markets, more than most other areas of life, frequently gather together a diverse group of people to predict the outcome of something. When a tentative Betfair punter puts the first offer of a bet up in a new market, what follows are a series of counter-estimates, until a liquid market is produced that provides Galton’s “middlemost” number – the median of all punters’ prediction as to the likely chance of any outcome.

And as reported in our article on favourite-longshot bias, data suggests that Betfair punters are every bit as good as Edwardian weight-guessing Ox-fanciers. In one small study, carried out in 2005, which looked at 65,000 results for British racing, horses seemed to win at a rate predicted by their odds. $1.50-shots won two-thirds of their races, $2.00-shots won half, and $100.00 won one per cent of their races.

This could put some off betting altogether. After all, if Betfair markets are near-perfect indicators of chance, what’s the point of betting?  How can you ever identify a value bet – where the odds you are getting represent a percentage chance of winning that is less that the actual chance of winning – if the market is so goddam efficient?

The answer lies in Surowiecki’s required conditions for collective wisdom to exist. Among other conditions, he claims that the crowd requires diversity, independence, and decentralisation. In other words, in markets where there are few people betting, and where those few are familiar with each other’s opinions, the accuracy of predictions will go down.

Whilst Betfair markets will often offer the conditions that Surowiecki requires for crowd wisdom, and so will be highly predictive when taken as a collective over a long period, they will be significantly less accurate when it comes to any individual market and outcome. Successful punters can identify these markets and exploit the short-term variation.

Nonetheless, the long-term prescience of Betfair markets should be sobering. When betting, we are taking on a large collective of other individuals, and we need to be confident that our selection methods and staking strategies are good enough to outperform most of them.

Next time we’ll look at the wisdom of crowds in more detail, including how to combat it when using Betfair, and how to use its characteristics to improve your own betting.

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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