Forbes.com - Magazine Article

From: Subject: Forbes.com - Magazine Article Date: Fri, 27 Dec 2002 21:45:42 -0800 MIME-Version: 1.0 Content-Type: multipart/related; boundary="----=_NextPart_000_0046_01C2ADF1.4DCC3F70"; type="text/html" X-MimeOLE: Produced By Microsoft MimeOLE V6.00.2800.1106 This is a multi-part message in MIME format. ------=_NextPart_000_0046_01C2ADF1.4DCC3F70 Content-Type: text/html; charset="Windows-1252" Content-Transfer-Encoding: quoted-printable Content-Location: http://www.forbes.com/forbes/2003/0106/056_print.html Forbes.com - Magazine Article 3DForbes.com

OutFront
Super Bowl Science
Ira Carnahan, 01.06.03

Sometimes sports bettors are no more rational than stock=20 investors.

Do you plan to bet on the Super = Bowl? A=20 growing body of academic research suggests that while the sports betting = market,=20 like the stock market, is mostly efficient, the psychological biases of = bettors=20 create some anomalies--and openings for profit.

That's the view of Justin Wolfers, who worked = in the=20 Australian bookmaking industry before getting his Harvard Ph.D. and now = teaches=20 "Finance, Behavioral Economics and Sports Betting" at Stanford's = business=20 school. Still, he warns, it's tough to come out ahead, both because = professional=20 gamblers often act as arbitrageurs, thus reducing anomalies, and because = transaction costs are so high. Here are some tips from the research of = the=20 gambling dons.

=95 Bet = against=20 suckers

When you wager on a = game,=20 you're not betting against your bookie--who usually strives to maintain = a line=20 that will draw an even balance of bets--but against fellow bettors. If = more=20 bettors favor the New Orleans Saints, the bookie moves the line, = requiring the=20 Saints to win by a bigger and bigger margin (even an improbable one) = until=20 enough bettors take the other side.

Where=20 can you find suckers to bet against? Hugely popular events like the = upcoming=20 Super Bowl, where an estimated 90% of bettors are unsophisticated, offer = one=20 opening. Even in regular season play, the betting on National Football = League=20 games is generally considered less sophisticated than betting on = baseball, which=20 has a large group of numbers-obsessed fans.

College football is another promising venue, but for = a=20 different reason, says Wolfers: Many games draw relatively limited = attention,=20 and those fans who do bet may have strong team loyalties that can lead = them to=20 take bad bets. The office is another good place to bet, provided you = won't get=20 fired for it. The Wharton School's Andrew Metrick found bettors in NCAA=20 basketball tournament pools put too much on first seeds and local teams = and too=20 little on second and third seeds and out-of-towners. =

=95 Keep costs low

First rule: Stay away from the ponies. Horse betting = is legal=20 in 43 states, but it's the most expensive sports bet. Tracks typically = keep 15%=20 to 25% of each pot. By contrast, Nevada bookmakers last year kept only = 4.5% of=20 the pool in football, 5.5% in basketball and 3% in baseball. Betting on = these=20 sports is generally legal only in Nevada. While illegal bookies = obviously don't=20 report their holds, they appear to work on roughly similar = percentages.=20

=95 Take the long view =

NFL bettors tend to overreact to teams' recent = performances=20 while ignoring their longer-term records, a 1997 study in the Journal = of=20 Finance found. So there's a profit opportunity for bettors willing = to take a=20 chance on teams that have struggled recently. Bettors also tend to = overestimate=20 the significance of games with lopsided scores and those with an unusual = number=20 of fumbles, interceptions or penalties. While turnovers and penalties = are=20 important--they explain about 40% of the point difference between = teams--they=20 reveal less than bettors believe about a team's prospects in future=20 games.

=95 Bet against the = home=20 team

A new study finds that = local=20 illegal bookies offer odds nearly identical to the legal odds in Las = Vegas with=20 two exceptions. First, local bookies often offer worse odds on the home = team,=20 reflecting the bias of local bettors. Some local bookies also use their=20 knowledge of bettors' past wagers to price-discriminate: If your bookie = knows=20 you would never bet against a certain team, he might feed you a sucker = bet. One=20 way to avoid such problems is to bet over the Internet. This is illegal = or at=20 least questionable, depending on where you live. But if you choose to do = it=20 anyway, Wolfers suggests checking out www.sportsbook.com, = www.willhill.com,=20 www.centrebet.com and www.betfair.com.

=95 Don't go for broke

Horse players regularly put too little money on the = favorites=20 and too much money on long shots, studies show. This produces a dramatic = skewing=20 of potential returns; one study found that when the odds on a horse = reach=20 30-to-1, the expected return on a $1 bet is about 60 cents. When the = odds exceed=20 100-to-1, it falls to a mere 14 cents.

Intriguingly, the tendency of horse players to put = too much=20 money on long shots is especially strong during the last couple of races = of the=20 day. Apparently, folks who've lost earlier are trying to make it up with = a big=20 score before heading home. =

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