Thursday, July 31, 2014

How NOT to bet

(True Story, but names are changed for no good reason.)

Alice, Bob, and Carol are betting on who will be the Republican Nominee in 2016.

  1. Alice bets on Jeb Bush. Alice's reasoning is that in the past the Republicans always end up with a moderate who they think can win. NOTE: From Alice's prediction you can tell NOTHING about her politics.
  2. Bob bets on Paul Ryan. Bob's reasons  that in the past the Republicans always end up with someone who they are familiar with, quite often someone who has run before. Normally this might be someone who ran in the primaries four years earlier; however, none of Herman Cain, Michelle Bachman, Rick Santorum, Newt Gingrich, seem likely. Rick Perry is possible but seems unlikely. That leaves Paul Ryan (Curiosity- people who lose, even if its close, do not run again. Not sure why. So it won't be Romney.) NOTE: From Bob's prediction you can tell NOTHING about his politics.
  3. Carol bets on Rand Paul. Carol's reasoning is that the American Public is tired of Big Government and is ready for the Rand Paul Revolution! NOTE: From Carol's prediction you can tell EVERYTHING about her politics.
Carol is letting her opinion drive her betting. Can someone take advantage of this? YES- if someone is betting from sentiment or emotion or conviction rather than from facts, that gives you an advantage in a bet. This does not always work, but its a good bet. Now watch, I'll lose my bet to Carol (NOTE- I am Bob).
One full dollar!

I think I read that you are better off betting AGAINST a triple crown if a horse won the first two legs for the same reason- there will be emotion driving the bet FOR, and that increases the payoff for those betting AGAINST. But of course nothing is guaranteed.  And there are some cases where its just ridiculous to vote against (Secretariat  in 1973); however, to use my system you can't just skip one since you ``just know'' that there will be a triple crown. Its a long term strategy. And one could be wrong.  That's why its called gambling!

Are there other cases where long term betting with facts and against sentiment can give you an edge?


  1. Nixon lost to Kennedy and later ran again (but this is indeed rare).

    1. I meant to say that running two elections in a row is rare (Adlai Stevenson did it in 1952 and 1956, he was the last one.) Is the relevant issue that these things are RARE or that they HAVE NOT BEEN DONE FOR A WHILE?

    2. Today I saw some republicans, including Pat Buchanan, talking about why Romney would be a good choice for 2016. I would like to bet against that.

  2. Isn't it almost axiomatic in economics that data-driven bets beat sentimental ones in the long run?

  3. YES- but (a) I want examples that people have actually used, and (b) what if your cold analytic strategy just doesn't feel right- like betting against Secretariat? Should you follow your cold logic or your gut?