How to beat the betting market
This one is going to be a simple mathematical introduction. The deeper parts of it you find elsewhere in this blog. But we will refer to this and that here and there. So try to build up your knowledge and understanding. It will definitely pay in the long run. Make sure you understand and know about those basics - which you of course do already?! It needs to be refreshed and repeated occasionally…
The basic approach is that simple: everything is driven by probabilities. Actually the whole life — because how did your parents meet and how did this one sperm find this one gamete? Coincidence? What else? —, but we stick to this what keeps us all so excited about and what we refer to here in general: betting. We do not know the outcome, and most likely no one else does (except Biff Tannen; but different story to travel time…). But a couple may try to approximate the probabilities. That is actually what we try to do —and we try to be better than market. Whereby market is not really defined, who calculates what?!
Anyway: if we know the probabilities we will definitely make money. But, make sure to understand: it is just a promise by the mathematical „law of large numbers“, that makes it so certain. And this includes: we may have been calculating all so well — but still for a given time spell the results just won’t tune in.
Still we will surely rely on these couple of laws:
- we try to approximate the probabilities as precise as we can
- we calculate the reciprocal of this probability, which we call „the true price“
- whenever the market price is higher than this true price we place a bet
- the law of the large numbers should provide the winnings over time.
About the statistics we need to observe and what else we need to take care of we will talk elsewhere. But your author here can at least make this promise: this concept did work out. So all those things combined should do the job.
The problem we face may be: how to determine those probabilities? Especially as those events we bet on are not recurring. So there are different kinds of stats needed … watch out for other articles in which this will be covered. The articles here will always intersect.