Super Bowl bet-onomics
Posted: Thursday, February 01, 2007 6:50 PM by Alan Boyle
It doesn't take an economist to come up with a betting strategy for this weekend’s Super Bowl: It’s the Colts by a touchdown. But based on his years of studying prediction markets, Wharton School economist Justin Wolfers does have some advice for the uninitiated bettors (I believe the scientific term is “morons”) who are entering the market. He also has some tips for sounding like a diehard football fan around the water cooler, even if you can’t tell Peyton Manning from Gary Payton – as well as some color commentary on the economic lessons taught by sports predictions.
"Anyone who tells you they know a good betting strategy for the Super Bowl is lying," Wolfers told me today. Why? Because by the end of the football season, so much is known about the two Super Bowl teams that it's hard for the "smart guys" to capitalize on information that's not available to the "morons," he said.
Wolfers' research focuses on prediction markets ranging from stock trading to sports betting to political polling, and his findings indicate that the line in Las Vegas serves as "the single best indicator of what's going to happen on Sunday." The preference for the Indianapolis Colts over the Chicago Bears is also reflected in the online markets at NewsFutures.com and TradeSports.com, he said.
But there are still ways to maximize your return, Wolfers said. "What you want to do is find the lowest-cost way to bet," he advised. "One way is to find a guy at the water cooler and avoid paying the 'vig' at Vegas."
Another way is to use an online football market - which structures its "trades" (the term "betting" is, ahem, frowned upon) somewhat differently from the traditional kind of bet you put down with a bookie. The online sites facilitate "person-to-person exchanges wtih far lower transaction costs," Wolfers said.
"Betting in Vegas, you might expect to lose $5 for every $100 you bet," he observed. The comparable figure for online trading might be as low as $1 per $100.
What if you have no intention of placing a serious bet on the outcome, but just want to take part in the water-cooler buzz on Friday afternoon? Here again, the online markets can help you out. Wolfers recalled that he used to print out the sports odds for his boss, years ago in Australia, so that she could carry on a seemingly informed conversation with officemates during her coffee breaks.
OK, even a sports moron like me could probably hold court for a few seconds on the expected score, based on the plain-vanilla odds, but wouldn't it be obvious I knew nothing about the players involved? It turns out I could keep the charade going much longer.
After sizing up today's "quarterback prop bets" on one of the online market sites, Wolfers came up with this riff on Sunday's game: "Manning is expected to pass for around 270 yards, probably for around 23 completions, and he will get sacked - oh, probably once or twice."
Bears quarterback Rex Grossman, in comparison, should put in a 208-yard performance for the day. I could also throw in that the Colts' Manning should toss at least two touchdown passes, while Grossman might chalk up one TD.
"This is literally a full water-cooler conversation you could have right now," Wolfers said.
After Sunday, we'll find out whether the online markets, or computer simulations, or even the flesh-and-blood experts did the best job of predicting the Super Bowl outcome. But this is just one game. Wolfers has found that when you look at thousands of games, the betting markets do the best job of anticipating the winner, fueled by the wisdom of crowds. "And there's every reason to think that that logic carries over to other domains," he said.
If you want to know the economic outlook, for example, "instead of asking a professional economist, I would look at the prediction markets like EconomicDerivatives.com," Wolfers said. To anticipate inflation trends, you could just look at the difference between indexed bonds and non-indexed bonds, he said.
Prediction markets are also playing a role in internal corporate planning: "Google runs markets on whether a product will be ready on time," Wolfers said. Similar schemes, generally fueled by play money and driven by the employees' individual assessments of progress, have been used by Yahoo, Microsoft, Hewlett-Packard and other companies.
Wolfers sees the predictive power of markets as a marvel: "The bad news is that it's hard to make money. The good news is, that means the betting odds or the spread is an incredibly beautiful thing."
But then, he's an economist. Markets can be fixed, or skewed by popular perceptions, can't they? Everyone may think the Colts have this one in the bag, but the Bears still have four quarters to prove the pundits wrong. What do you think? If you want to talk about football, click on over to our NFL discussion forum. But if you want to talk about the predictive power of markets, in Vegas and elsewhere, feel free to add your comments below.
