In betting there are levels of gamblers.
Level 1 is a gambler who simply bets at random. They have no thought process when selecting a bet, they simply choose at random. For example, lucky dip in the lottery, picking a horse out of a hat, or at very best based on their favourite name. Now this plays to the house clearly, because in the long term the odds favour them. The profit is made by non-frequent gamblers who “strike it lucky”.
Level 2 is a gambler who bets on partisan. Very often a level 2 gambler will make bigger losses than a level 1 gambler. By partisan betting, I mean that the gambler selects their favourite player, team, horse etc to win. For example, football fans who bet on their team to win, or their rival team to lose. The phenomenon of reverse-partisan betting also comes under this umbrella, where the gambler selects against what they want to happen so that they hedge their utility, i.e. if my team wins I am happy, if my team doesn’t win, I make some money so I am also happy. In general, only a lucky few make money betting this way.
Level 3 gamblers are those who bet on probability, they decide what they believe is most likely to happen and select this outcome. At first sight this doesn’t seem like a bad way to go, but there is often a disregard for the price being offered. There is a large amount of bias in this method too, with level 2 partisan thinking coming into play when these on the spot probabilities are calculated. Often the gambler will not even think of the selection in terms of probability. For example, “Chelsea vs Blackpool, Chelsea will definitely win” compared to “Chelsea vs Blackpool, Chelsea would probably win 90 times out of 100”. Either way, this method rarely goes against the favourite and this plays right into the bookies hands.
Level 4 gamblers are those who bet on value, they decide what the probability of an event is and then look at the prices being offered to see if the price is understated or overstated. For example, I think the Haye vs Klitschko fight is 50/50, therefore I would look at evens as the base price and bet on the fighter priced above evens, in this case David Haye. In general, this is as sophisticated as your gambler gets. They won’t calculate the probabilities any differently to a level 3 gambler, the only difference is that they won’t select the most likely event, rather they will take into account the prices being offered and go for the best value. There are types of level 4 gamblers, some will look to back the most likely outcome and only back it if the price is good enough, if it isn’t good enough then they will not bet at all, or strangely they will place the selection in an accumulator to get a perceived higher value. This flawed logic will often lead to a string of poor value bets rather than one good value bet.
Level 5 gamblers actively create models in an attempt to accurately assess probability. They then use these probabilities to judge the value of a particular bet and select based on the highest expectation. The largest difficulty with this method is the ability to incorporate all the variables into a model. This is in practice impossible without introducing bias. For example how do you assess the impact of a Kolo Toure drug ban on Man City’s probability of winning a football match. The result is a series of crude models which constantly adapt to absorb past data and weight them accurately. This means that the models are a representation of the past rather than an accurate forecasting method. Nevertheless through experience of using models you are able to identify trends and evolve the model to accurately represent probabilities.
There is a level 6 gambler, but there is an argument of whether this level of gambler counts as a gambler at all. They seek arbitrage. They will identify opportunities where they can make risk free profit, these opportunities are not as rare as you might think but are obviously rarer than the level 5 good value bets. So the amount of profit will be limited compared to the possibilities of level 5 gambling but this is at the benefit of risk free profits.
Level 1 is a gambler who simply bets at random. They have no thought process when selecting a bet, they simply choose at random. For example, lucky dip in the lottery, picking a horse out of a hat, or at very best based on their favourite name. Now this plays to the house clearly, because in the long term the odds favour them. The profit is made by non-frequent gamblers who “strike it lucky”.
Level 2 is a gambler who bets on partisan. Very often a level 2 gambler will make bigger losses than a level 1 gambler. By partisan betting, I mean that the gambler selects their favourite player, team, horse etc to win. For example, football fans who bet on their team to win, or their rival team to lose. The phenomenon of reverse-partisan betting also comes under this umbrella, where the gambler selects against what they want to happen so that they hedge their utility, i.e. if my team wins I am happy, if my team doesn’t win, I make some money so I am also happy. In general, only a lucky few make money betting this way.
Level 3 gamblers are those who bet on probability, they decide what they believe is most likely to happen and select this outcome. At first sight this doesn’t seem like a bad way to go, but there is often a disregard for the price being offered. There is a large amount of bias in this method too, with level 2 partisan thinking coming into play when these on the spot probabilities are calculated. Often the gambler will not even think of the selection in terms of probability. For example, “Chelsea vs Blackpool, Chelsea will definitely win” compared to “Chelsea vs Blackpool, Chelsea would probably win 90 times out of 100”. Either way, this method rarely goes against the favourite and this plays right into the bookies hands.
Level 4 gamblers are those who bet on value, they decide what the probability of an event is and then look at the prices being offered to see if the price is understated or overstated. For example, I think the Haye vs Klitschko fight is 50/50, therefore I would look at evens as the base price and bet on the fighter priced above evens, in this case David Haye. In general, this is as sophisticated as your gambler gets. They won’t calculate the probabilities any differently to a level 3 gambler, the only difference is that they won’t select the most likely event, rather they will take into account the prices being offered and go for the best value. There are types of level 4 gamblers, some will look to back the most likely outcome and only back it if the price is good enough, if it isn’t good enough then they will not bet at all, or strangely they will place the selection in an accumulator to get a perceived higher value. This flawed logic will often lead to a string of poor value bets rather than one good value bet.
Level 5 gamblers actively create models in an attempt to accurately assess probability. They then use these probabilities to judge the value of a particular bet and select based on the highest expectation. The largest difficulty with this method is the ability to incorporate all the variables into a model. This is in practice impossible without introducing bias. For example how do you assess the impact of a Kolo Toure drug ban on Man City’s probability of winning a football match. The result is a series of crude models which constantly adapt to absorb past data and weight them accurately. This means that the models are a representation of the past rather than an accurate forecasting method. Nevertheless through experience of using models you are able to identify trends and evolve the model to accurately represent probabilities.
There is a level 6 gambler, but there is an argument of whether this level of gambler counts as a gambler at all. They seek arbitrage. They will identify opportunities where they can make risk free profit, these opportunities are not as rare as you might think but are obviously rarer than the level 5 good value bets. So the amount of profit will be limited compared to the possibilities of level 5 gambling but this is at the benefit of risk free profits.
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