Online betting markets for sports, economic predictions, and other outcomes are much more an indicator of the current vibe or sentiment regarding a thing than its actual probability.
Take, for example, betting markets around probability for a recession in the U.S. over the last few months, which have fluctuated wildly with news headlines between 20-80% less in response to fundamental economic data and more in response to news items and business sentiment.
Odds around the NBA championship are another example, where the Denver Nuggets have oscillated wildly from +1000 to something like +6000 odds (v OKC just over +100) despite being in a game seven and close series. And odds around the other teams have similarly fluctuated with the most “improbably” scenarios having almost universally occurred this playoff series.
Further, those sentiments are self-reinforcing now that news covers betting markets more aggressively. This is definitively true in sports, where the major personalities and networks are all paid for by gambling sites and constantly pump the latest moves in betting markets — increasing the circular sentiment shift. But it’s becoming more true in economic markets as well: it’s tough to find an economics podcast that doesn’t mention economic betting markets instead of polls or fundamental economic data.
I’m sure the gambling companies are making money hand over fist, but I assume they benefit tremendously from more analytic arbitrage on the wild swings in these markets than their accuracy.
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No, the population prone to gambling are rarely reflective of the general population. For example, the group of people prone to gambling on election results is only a very small slice of the voter base at large.
Of course, it will depend on how the ‘actual probability’ for that event would be calculated because it might have faults depending on the specific thing, too, but I don’t think you can just make a blanket statement for that.
> Betting markets are a better measure of sentiment than probability
What does probability even mean here? It is very difficult to assign probably to future events and usually it’s done by observing similar past events. But human choices aren’t random like dice.
Obviously gambling institutions and insurance companies use models to estimate a probability for future events, but they are imperfect.
I’ll also add that gambling sites are using their probability models in their payouts. So if you are looking at gambling trends you are also looking at probability models which influence that
Why are betting markets a better measure? What is the “actual probability” of events? Isn’t there a problem if a thing can’t be bet on, like opinion polls as opposed to “Team X wins or loses?
The people setting the odds don’t give a shit about sentiment, and the bigger gamblers only care about winning, not their own team. Your example with the NBA is flawed. Just because the series ended up being close, does not make the betters wrong. They didn’t put the odds at 100 to 0, they put one side favorably, that does not mean the favorited side will always win. The reason you are seeing this shift in betting markets as a source, is because they ARE more reflective of reality then polls are now.
I’m not so sure of that. The amount of people betting could be those who are exceptionally desperate as well. I think the brothel index would be more representative
This isn’t an unpopular opinion. It’s just a fact. Bookies change their odds depending on their exposure.
Economic markets are already a betting market in a sense.
It is an interesting phenomena that you talk about though. Markets self-correct to find the true value.
There’s a cool maths demonstration called “The Wisdom of the Crowd” in which let’s say in a cattle sale where people are asked to guess the weight of the cattle. The average of all of the crowds guesses closely approximates the answer, doing even better than the experts on cattle.
https://en.m.wikipedia.org/wiki/Wisdom_of_the_crowd
Someone with a shitton of money betting $100,000 on a game will affect the odds more greatly than 3 people each betting $10 on the opposite side. I would argue that isnt an accurate representation of sentiment.
That’s like… exactly what betting markets are. Why would it be related to probability?