Reading Material

One of the things I plan to do while I'm not gambling is... read about gambling. Sports gambling has taken a more academic flavor over the last several years. I've already documented some articles here, but since I plan on using the Googles effectively, I'll link to papers that I think are worthwhile to the mathematically inclined in this post. I'll be updating sporadically and infrequently.

Brandes Inst. - Non-techinical lit review. If you aren't good at the maths, just read this one
Levitt (2004) - Explains why contrarians often bet on dogs
Dare (2006) - Explains why sports betting is a poor investment using Kelly criterion
Fair and Oster (2005) - The books know more than anyone else
Paul and Weinbach (2007) - Follow up to Levitt (2004) using "real" data
Woodland and Woodland (2000) - Weak evidence for betting against winning streaks
Sapra (2008) - Wager against last year's "out of nowhere" teams in the NFL
Paul and Weinbach (2008) - Early forward line movement for dogs is profitable in bases

Abstract for you NBA bettors:
Price Setting in the NBA Gambling Market: Tests of the Levitt Model of Sportsbook Behavior

Levitt (2004) suggested that sportsbooks do not set prices in the NFL to clear markets, as was commonly assumed, but set prices to maximize profits. This paper uses actual betting data from four sportsbooks to test the Levitt (2004) hypothesis in the NBA. For a sample of the 2004-05 to 2006-07 seasons, it is shown that favorites receive a disproportionate share of NBA pointspread bets. In addition, the percentage of bets the favorite receives increases with each additional point of the pointspread. In the totals market, it is shown that overs receive a much higher percentage of bets compared to unders and the percentage bet on the over increases with each point of the total. Unlike the NFL, however, taking a contrarian position and betting against public sentiment is not found to win more often than implied by efficiency.

My basic commentary on all of these articles is that the markets are slightly inefficient, as we've already hypothesized. A simple system is not going to cut it to beat the books, which all of these papers have shown. There obviously is something to thinly slicing lines, if you assume we have enough knowledge about the sports we wager on to find bait lines. I would also suggest that the Paul and Weinbach (2007) paper shows that the betting percentages we all use may have more value than we currently attribute to them. Combining the two strategies in an intelligent and as yet undiscovered way will likely yield the best results.

I'll be away most of the weekend, so feel free to tell me why I'm an idiot and I'll likely agree with you on Sunday night.


Walter said...

Actually went to a seminar yesterday by a graduating Texas A&M Ph.D. who is writing a paper on MLB betting as a market. The actual lecture was actually on finding the optimal tradeoff between improved infrastructure and improved TC forecasts. Seems like you would appreciate everything this guy does.


(he is actually a faculty candidate in Quantitative Analysis of Energy Risk here at PSU)

am19psu said...

It'd be nice if any of these academic assholes actually put their freaking manuscripts on the web. I'm not dropping $30/paper for my stupid blog.

In our field, everyone puts their stupid publications on their stupid webpages. Too much of my day off was spent chasing articles that looked interesting but were pay only.

ilike#s said...

i work were i can get pretty much any journal. hit me up with a list and i will work on it.

am19psu said...


I'll drop you an email. I could literally send you 20 articles. I'll start with the five that looked the best.

Erich said...

Given the time invested and the return, I would have a hard time arguing with Dare's conclusion.

On the whole, I'd say most people don't bet sports for financial gain. Self deception may make that claim, but really most of this behavior is driven by chasing the high of winning (1) (2), seeking status (1) (2).

moneyline said...

I'm going to read/re-read these over the weekend, but I just scanned the Paul & Weinbach piece and the comments on how variance/volatility might deter potential investors really sang to me because it is something I have thought about a lot lately.

What I've come to realize is that my (our) money management strategy was just far too aggressive. I can't really complain because what I tore down this year was built by the same madness, but when I "come back" I think I am going to be much, much more timid in this regard.

am19psu said...


A few points:

1. I would certainly never suggest to anyone that gambling is the way to become independently wealthy or the proper way invest retirement money.

2. That said, I would love to see Dare's study re-calculated given today's stock prices. Basically, we were at the height of a bull market when he wrote that.

3. I'm not sure why you always bring up the time we invest. How is what we do any different than traders and hedge fund managers (though at smaller limits, except for ML)?

4. I'd argue the contrarian community, because of our quantitative nature, moreso than any other subset of gamblers is more concerned with making money. I wouldn't be doing this if I didn't think it was long run profitable. More profitable than the S&P is a different question.

5. You are right to attribute some of this behavior to being degenerates, though, obviously.

Erich said...

2. There is a lower risk free rate today (near zero in fact) which would certainly impact Dare's analysis, though I'd counter there are some additional risks that do not come up in his study. Those risks include payout risks, institution risks, (ie the "BetonSports" risk) and, for the fortunate, potential tax risks.

3. Through the years (boy I sound old), I have noticed an increasing value on time, in that it is now my most precious resource. Traders get paid directly for their time as they are working for others. Day traders on the other hand are much more like sports bettors. Look at the time invested against the returns generated and on average I'd expect you would see a very low hourly wage with a high variability. I'd take that as another indicator that sports betting is a leisure activity rather than an activity undertaken to maximize financial capital.