A Detailed Look into the Sports Betting Psychology
Applying Wisdom of the Crowds to sports betting - How does it impact sports betting predictions?
If you’re faced with a difficult problem, it’s only natural that the more number of people you survey regarding the solution, the better the solution will be. It’s a theory which is commonly referred to as the Wisdom of the Crowds. It’s a pretty effective method of making sound decisions in uncertain situations, especially when it comes to predicting the outcome or probability of sports betting events.
However, the problem arises due to the fact that many a times the crowd has a tendency of acting like a foolish herd! Hence, how do you determine that your opting for the collective way is actually the equivalent of going wrong?!
About the USS Scorpion and Predicting the Unknown
It was during the early 20th century that the Wisdom of the Crowds phenomenon got noticed for the first time by a well-known anthropologist known as Sir Francis Galton. He was visiting a livestock fair where he witnessed a competition about guessing a butchered ox’s correct weight. While no one was able to guess the exact weight of the butchered animal, Galton quickly calculated the median of all guesses falling inside 0.8% of the right answer, with the belief that the middle-most estimate correctly expresses the belief of the majority, and that every other estimate is either too high or too low.
The Wisdom of the Crowds or Vox Populi transcends various decision-making aspects, a fascinating and major cross-section of which has been examined in a 2004 book written by James Surowiecki. Among several interesting anecdotes it touches upon is the story related to the search of USS Scorpion submarine, that had gotten lost in May 1968 in North Atlantic region.
The Navy managed to locate the wreck only inside a 20 mile range during its search efforts. Dr John Craven, a naval officer made use of collective wisdom and managed to gain individual insights from a varied and extensive group of salvage experts. He used all this collective information for successfully pinpointing a location which was no more than 220 yards away from the Scorpion wreckage!
So, how do you think all those unrelated individual opinions were averaged out to achieve that kind of accuracy?!
How can this information be used in the field of sports betting?
Just as you can use this information to successfully locate a shipwreck, you can also use it to correctly predict the results of various sports events when betting on portals like Bet365 etc. The crowd normally provides a fairly accurate assessment of respective probabilities of various outcomes. Betting odds derive their accuracy from Wisdom of the Crowds and shape the opening line of an online casino or bookmaker, exposing it to the general public (for appraisal).
Sharp bettors normally have their own ideas of opening lines, and when these diverge with that of the bookmakers, often cause these sharp bettors to act quickly and re-shape the sports betting markets. With a market turning more liquid, more people voice their opinions on sports betting predictions (via bet placements) in it; very soon the market moves to the most efficient position, as the more number of guesses contribute to more accurate assessment of the average guess.
But when we talk about the USS Scorpion story, John Craven had ensured that the crowd in his case was only the best available experts. Apart from that he garnered various opinions independently. Talking about the sports betting field, high precision individuals are not always the only participants. Furthermore, decisions are not made in a closed and vacuumed environment. So, what do you think happens when the opinions of other casual bettors are also weighed in, and in situations when there are no experts available at all?
Information cascades and behavioural biases
Bettors who bet on websites like Bet365 and at other bookmakers contribute to market movements are normally drawn from a fairly wide spectrum constituting of varying experiences and knowledge. Furthermore, there is a certain specific distribution when it comes to the timings when these different groups make their wagers.
A constantly recurring theme in a lot that’s been written on this topic is to do with behavioural biases and the impact they have on rational risk assessment. As mentioned earlier, the sharpest players are normally the first to act, and while the public money (involving less informed betting) tends to happen closest to the start of the events, and normally reflects the general thumb rules, for instance, which team a person recalls winning more frequently? Which team a person is more familiar with? etc.
All such lazy judgements lead to more money getting wagered on strong favourites, skewing and moving the betting market away from the most efficient position. Visit any offline or online casino providing betting services and you’ll know how this is a fairly good illustration of how Wisdom of the Crowds can get quickly replaced by foolishness of the herd!
All this public money may often distort, instead of reversing a betting market, however, this type of collective poor reasoning (also referred to as information cascade) can have a much bigger impact.
About Harry Redknapp and wooden roads
If we look at examples of information cascades other than the ones to do with sports betting, the rise and quick fall of wooden roads during the 19th century and run on the bank instantly come to mind. The managerial markets normally follow information cascade model when it comes to the sports betting world - the events that followed Fabio Capello’s resignation as English Football team’s manager on February 8, 2012 are an excellent example of information cascades. The sports bettors were immediately willing to bet huge sums of money at tiny odds on the possibility that Capello would be replaced by Harry Redknapp as the next English Football team manager.
Although this technically qualified as a sports betting prediction, the precision individuals were nowhere in this situation. The market was eventually driven to a strong judgement based solely on persuasive arguments that backed Redknapp’s appointment. Everyone wanted to back an English manager and Redknapp had enjoyed a fairly good spell with the Spurs team at that time. Many sports bettors on the other hand wanted to go with the judgement of other people and the media. Being unaware of the information of others, sports bettors made an assumption that this information was nothing more than wishful thinking or mere speculation. However, it was not. It was Roy Hodgson who was announced as the new manager of the English Football team on May 1, 2012.
In case of an information cascade, the decisions are made in a sequential manner. They generate momentum with the impact of incremental decisions formed on the basis of the existing opinion, which had helped build a feedback loop, which drove the prices down.
It’s the information cascade only that underlines the main point of the Scorpion anecdote – The more difficult the question is, and/or the weaker the knowledge pool is, the less reliable will be the collective wisdom. Also situations can be utilised as excellent opportunities for making profitable sports betting predictions if sports bettors can avoid getting swept away by such information cascades.
Pump and Dump - Manipulating betting markets
Motivation is a very important factor when it comes to formation and movement of betting markets. Although speculators are mostly motivated by profit, the different ways in which this profit can be achieved are divergent in nature. When talking about the financial world, the term Pump and Dump normally refers to the malpractice of hyping up stocks, in order to inflate their prices, providing for short-term gains. The reverse is also commonly practised wherein the stock prices are shortened, driven down mainly because of negative speculation. All such tactics drive markets in an unnatural direction, and are equally applicable when it comes to sports betting markets too. The sheer speed at which information is disseminated in the modern times (via social media etc.), the effects of this phenomenon can be even more potent. It’s no longer a time when you can blindly trust the crowds.
Keeping aside some of the important biases that we have highlighted in this write-up, you should know that the more liquid a market is, the better will be the collective wisdom. This is applicable to all major sports events including US major sports leagues, tennis grand slams, major soccer leagues and more - and it’s making it even harder for the sports bettors (betting with offline or online bookmakers like Bet365 etc.) to find betting value. The niche sports events however may still provide ample opportunities owing to the absence of detailed information, and hence wisdom.
Furthermore, as there will be far lesser high-precision bettors wagering on niche markets, it’ll also test the knowledge of bookmakers, providing opportunities to those sports bettors who’re willing to do comprehensive research, and who can successfully figure when the crowds are lacking wisdom (and thus react accordingly).
About the Green Lumber Fallacy
One of the major mistakes made by aspiring sports betting enthusiasts is that they confuse specialist knowledge in a certain sport with speciality in the field of sports betting. You’ll find these errors regularly made by ex-professional sports stars who turn into self-proclaimed experts or betting tipsters. This phenomenon is perfectly described by the Green Lumber Fallacy.
The term Green Lumber Fallacy is derived from the experience of a certain highly successful trader of green lumber (freshly cut wood). This trader actually had no idea about the product he was trading in. In his entire career trading in green lumber, he had always believed the product was simply wood that was painted green, and was in no way actually a newly cut tree.
Green Lumber Fallacy, the term was actually coined by someone known as Nassim Nicholas Taleb in his book titled ‘Antifragile.’ In this book he outlined another similar situation wherein a popular Swiss Franc trader who although couldn’t even locate Switzerland on the world map, didn’t feel hindered when it came to making money by trading Swiss currency.
How do you think people who’re so ignorant of what they’re actually dealing in succeed in their endeavours? And how this is applicable to the field of sports betting?
These two types of people, and several more, simply have a good understanding of risk, something which other people, even the ones with solid knowledge of all European countries or green lumber, do not.
Although ideally you should know enough about both the market as well as the risks involved in it, at the bare minimum, it’s very important to have some knowledge of the risks involved, if not more, at least to the extent that you know about the sport per se.
This is in stark contrast to the images you see on the back pages of major national newspapers, where you’re most likely to find tipping columns written by retired sports personalities. It’s understandable if a sports better chooses to give some weightage to an ex-soccer players opinion with regard to soccer bets placed on some online casino, however, keep in mind that soccer (the game per se) and betting on soccer, are two completely different things.
Acknowledgement and application of risk
Even though it was Taleb who was responsible for giving the Green Lumber Fallacy its name, the theory actually appeared somewhere else. For instance, Moneyball, the highly influential book written by Michael Lewis focuses on the idea that the combined wisdom of MLB insiders spanning over 100 years, was based on a subjective analysis which was flawed at core. A more analytical approach based on some fundamental key metrics may prove to be more effective in its place.
Many English Premier League managers have adopted the Moneyball approach, challenging the heavily subjective old school approach, which is pretty hard to quantify and is often marred by confirmation bias.
Following points are very crucial for a successful career in sports betting (whether you bet offline or at some online casino such as Bet365 etc.) and should be thoroughly read and practiced by any and every sports bettor:
– Just because a person knows a lot about a certain sport or has immense experience in it doesn’t imply that he also has the requisite knowledge for betting successfully on it.
– Tipsters, journalists and talking heads all love narratives, stories that neatly explain how a team lost its form! In fact, they all love to back-fit narratives that correctly explain why a story has drifted in a completely unexpected direction (which usually is the case).
– You must always ask yourself this question – Do you think knowing a lot about tennis means that you must jump into tennis betting with great confidence?
Obviously, no one is telling you that being knowledgeable about a certain sport is completely valueless and/or irrelevant when it comes to betting on that sport. However, when you refer to the mainstream media, their primary narrative is that all such talking heads are predictive experts in their fields. However, just because they have specialisation in a certain domain, just as in case with green lumber, usually means that there are hardly appropriately placed when it comes to making predictions or judging the risks associated with that field, especially when it’s someone’s hard-earned money at stake.