Who are we?
Three economists, Marco Celentani (Universidad Carlos III), J. Ignacio Conde-Ruiz (Universidad Complutense de Madrid) and Juan Rubio-Ramirez (Emory University) and a programmer, Victor Rodríguez. You can contact us at firstname.lastname@example.org. The first phase of the project, that focused on the 2014 World Cup, was developed with the help of Pedro Artiles, Cristo Almeida, Raúl Díaz Poblete, Belén Picazo and eldiario.es.
Who could be interested in these probabilities?
- A spectator, because these probabilities give quantitative information that says a lot more about the game than statistics on ball possessions, passes, or shots on goal.
- Somebody who may want to bet, because visualizing probabilities makes it easier to compare one’s own opinion with the one prevalent in betting markets.
What does it mean that the draw has 40% probability? For some, it means that if the match is repeated 100 times, it would end in a draw approximately 40 times. For those who think that this interpretation has no meaning because a game is a unique event, there is another interpretation. If there are 100 different games and in all of them the probability of a draw is 40%, approximately 40 of them will end in a draw.
Is it not better to make a prediction with 100% probability? The idea is to be as precise as possible, but no more. Suppose there are 2 urns. In the red urn there are two red balls and one green ball. In the green urn there are two green balls and one red ball. A blindfolded man selects an urn at random and draws a ball from the urn. Then he sees the ball and has to determine with as much precision as possible the chances that the selected urn was the red. If the man is colorblind (cannot distinguish between red and green) he can only conclude that the two urns have the same probabilities, 50% each. If the man can tell red from green, and sees a red ball, he can conclude that the probability of the red urn is 66.7% and the probability of the green one is 33.3%. But he can’t be more precise than that. If he claimed to be sure that the urn was the red one, he would be making a mistake or would be lying in the hope that successful prediction would be remembered for long and a wrong prediction would be soon forgotten. In other words the uncertainty that is normally associated with forecasting cannot be ignored.
How do we calculate the probabilities? In 1906 eight hundred people participated in a contest to guess the weight of an ox at a cattle fair in Plymouth, UK. Francis Galton, one of the fathers of statistics (and a cousin of Charles Darwin!), was there to take note of all guesses. The mean of the guesses was 1198 pounds. The actual weight of the ox was 1197. This is a famous example of what is often called the “wisdom of crowds”: a process that takes into account the views of many individuals, rather than just one, contains much more information. We put this idea into practice by using the odds of the Betfair UK betting exchange to aggregate the views of market participants on the probabilities of the possible outcomes of each game. For example, if the win for a team is listed at 5 (you get 5 times your bet if the team ends up winning and nothing otherwise), the aggregate view is that the probability that the team wins is 1/5, or 20%. No wonder economists often refer to betting markets as “prediction markets” or “information markets”.
Who are the market participants? Market participants include many amateurs that bet small amounts for fun or to prove their football expertise. There are also many traders with deep pockets who use sophisticated techniques and advanced computer resources to react quickly to events in the game and changes in odds.
Why pay attention to the market view? There are several reasons for this. The two main reasons are:
- Prices reflect much more the view of an informed and sophisticated trader who bets a lot of money than the opinion of an amateur betting small amounts with little financial concern.
- Expressing an opinion is free when you participate in a survey or talk to friends or when sports commentators participate in a TV show. This is not true when you bet. In this case you make a point only to the extent of your confidence. For your opinion that team A will win with probability greater than 20% to count in our calculations of probabilities, you have to bet money on team A winning if this is offered at 5 to 1. And for your opinion to count a lot, you would have to bet a lot of money.
Why focus exactly on the UK Betfair betting exchange? Again, there are several reasons for this. The two main reasons are:
- The UK Betfair betting exchange is the largest bilateral sports betting exchange in the world. This means that it is a platform that allows every registered bettor not only to buy, but also to sell bets. Almost all other betting houses only sell bets (and Betfair also offers this option),. But in a bilateral market, with many traders on both sides, there can be more confidence that the result is competitive and therefore that market prices reflect only the information of operators and are not distorted by market power.
- Since market prices respond quickly to betting information (goals, bookings, substitutions or other game events) we can constantly update predictions.
Does all this have any relation to the stock market or yield spreads? Yes, but there is an important distinction. Stock prices and yield spreads reflect the economic conditions of a company or a country. But the economic conditions of the company and the country also depend on stock prices or yield spreads, because the financing of the former depends on the latter. In other words, stock prices and yield spreads and economic conditions of companies and countries influence each other. None of this occurs in the case of football. The game runs oblivious to the betting odds. The game influences odds, but the odds do not influence the development of the game. Odds are only useful to make a prediction of the outcome of the game.
Can I bet on the Betfair exchange market in the UK? That depends on the country in which you are located. In some countries betting exchanges are not allowed. If the UK Betfair website redirects to your country page, you may be in a country where access to the UK exchange market is not allowed. You could contact Betfair and if in doubt, check the legislation of the country where you are. Again, we neither intend to encourage anyone to bet, nor do we intend to do the opposite.
Do we have a commercial relation with Betfair or other betting houses? None. Betfair does not charge us anything nor do they pay us anything. The information we use to compute probabilities is freely available to registered users in all countries where betting in an exchange is allowed.