I am a firm believer in the Wisdom of Crowds.
Sometimes if I’m running an event, I like to pass a jar of sweets through the audience and have everybody guess how many sweets are contained. Plotting the results on a graph nearly always results in a demonstration of normal distribution with the midpoint centred on the true value – uncanny!
So, as a bit of fun, I thought how would this apply to horse racing odds?
There are a wide variety of factors that can affect odds on a horse race, and odds compilers spend time gathering all available information before setting an early price. This price may then fluctuate up to the start of the race, when the ‘starting price’ becomes fixed. One of the major factors that moves the ‘starting price’ is how much money has been taken against each horse from punters – bookmakers don’t want to be over exposed should a horse win, so balance the odds accordingly – an example of the wisdom of crowds.
Let’s gather some data and see what it tells us…
Betfair is an online gambling company which operates the world’s largest online betting exchange. Betfair use a system of decimal odds, which are a simpler way of working out betting odds.
If the decimal odds are 2.2 and you place a back bet of £10 and win, your total return is £10 x 2.2 = £22. This is equivalent to a traditional price of 6/5.
Even better, Betfair have a ton of historic pricing going back over ten years, ripe for downloading.
Let’s fire up Python and write a quick script… You can replicate this experiment using the source code contained in my Gist.
The script gathers a list of csv files from Betfair containing the results of the UK Horse Racing Win market over the last ten years. It then counts up the number of wins for each range of ‘starting prices’ and compares them against the implied probability.
And the results are as follows…
An almost perfect match of the averaged actual outcomes against predicted probabilities.
The wisdom of crowds wins again… Well almost… In most gambling markets there is something called the ‘overround’, which is the bookmakers profit. If you sum all probabilities in a horse race, the total will be less than 100% – the bookies are the only long term winners – don’t waste your money!
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