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jfdinneen
04-01-2008, 03:38 PM
In answering a question from a novice handicapper (private communication), it struck me how easy it is to misinterpret some fundamental mathematical concepts relating to sportstrading. In that light and for the benefit of other beginners on the forum, I wish to clarify the concept of negative expectation.

Some handicappers believe incorrectly that, if they play a negative expectation game, they will lose a percentage of their initial bankroll equivalent to that expectation. This is incorrect.

For example, assuming that the expectation of randomly betting favorites at Track X is -17% and that Joe Punter starts with a bankroll of $1,000, he expects to lose (randomly betting favorites at Track X) $170 (17% * $1,000) over a season. In fact, he can expect to lose 17% of his total bets (turnover), not of his initial bankroll. Suppose he makes 250 flat $30 bets on favorites giving him a total turnover of $7,500 ($30 * 250), he can expect to lose $1275 (17% * $7,500) - not $170! In other words, he stands to lose (on average) $275 more than his initial bankroll!

Apologies in advance if this concept has already been clarified by other forumites

John

formula_2002
04-01-2008, 03:54 PM
I'LL MAKE A POINT OF SOMETHING.
IF YOU START WITH A VERY LARGE BANKROLL, IT COULD TAKE A VERY LONG TIME BEFORE A .83 ROI EATS IT ALL UP.

IN THIS CASE, A .83 ROI, WITH A $2000 STARTING BANKROLL ATE UP
10% OF THE BANKROLL

SO START WITH A LARGER BANKROLL, SAY $20,000 BANKROLL THEN, YOU WOULD HAVE LOST BUT 1% OF YOUR BANKROLL.

NOW THAT'S WHAT I CALL MONEY MANAGEMENT!!


from note #6 in

http://www.paceadvantage.com/forum/showthread.php?t=45468

singunner
04-01-2008, 04:34 PM
Few people realize the coin flips the other way as well. An ROI of 101% will be multiplied by the total amount of money you wagered, not your bankroll. For me, that's the most interesting part of this game. If they offer you 1% at a bank, you laugh at them. If they offer you 1% at the track, you laugh with them.

Overlay
04-01-2008, 06:31 PM
Some handicappers believe incorrectly that, if they play a negative expectation game, they will lose a percentage of their initial bankroll equivalent to that expectation. This is incorrect.

Not to nitpick (since I agree with the main point of your post), but, despite the take, racing is not a true negative-expectation game. (That's what makes the concept of an overlay possible.) I think it's important for handicappers (especially new handicappers) to understand that, since it's one of the things that separates racing from most casino games and other forms of gambling where the player is fighting adverse odds that never change; any winnings are attributable entirely to luck; and losses are unavoidable for anyone who plays long enough. It's also why there's more to handicapping than just picking the winner.

Cangamble
04-01-2008, 07:43 PM
If the average takeout rate was 40% it still wouldn't be a negative expectation game by definition, but at what point does one drop the conventional definition?

Overlay
04-01-2008, 08:01 PM
As you say, the take is an obstacle that each player must overcome, and continually increasing it only makes consistent profit more difficult to achieve than it already is, to the long-term detriment of the sport itself. But even talking about the possibility of systematic, consistent profit has no meaning in the other games that I was referring to.

highnote
04-01-2008, 08:32 PM
If the average takeout rate was 40% it still wouldn't be a negative expectation game by definition, but at what point does one drop the conventional definition?


Good point. Dr. Z wrote a book "Dr.Z's 6/49 Lotto Guidebook" which shows how it may be possible to get an edge in lottery games. These games can have a 50% takeout!

Norm
04-01-2008, 09:14 PM
A nickel's worth of input from an old-style 'capper. In the old days we were taught that horse racing was a winnable game because there were two sets of odds in play, the natural odds of an occurrence and the odds on the tote board. What you could win was the difference between the two, nothing more, nothing less. There is nothing else available to win but the difference. The take-out had no effect, what you saw on the tote board governed all decisions. And what, you should ask, were the 'natural' odds ? Well, that is what handicapping is all about and that is why handicappers are enthusiastic record keepers.

In real estate it's location, location, location. In handicapping it's records, records, records. It's a positive expectation game. Identifying the difference is how it's done.

Cangamble
04-01-2008, 09:57 PM
A nickel's worth of input from an old-style 'capper. In the old days we were taught that horse racing was a winnable game because there were two sets of odds in play, the natural odds of an occurrence and the odds on the tote board. What you could win was the difference between the two, nothing more, nothing less. There is nothing else available to win but the difference. The take-out had no effect, what you saw on the tote board governed all decisions. And what, you should ask, were the 'natural' odds ? Well, that is what handicapping is all about and that is why handicappers are enthusiastic record keepers.

In real estate it's location, location, location. In handicapping it's records, records, records. It's a positive expectation game. Identifying the difference is how it's done.
The problem is that spread between the natural odds and real odds is now at a point that it is pretty much unbeatable without a healthy rebate.
In the old days, and I know I've made this point over and over, there were no Beyer figures and there was a lot more blind public money (no slots and very little other gambling competition made it so the pools were full of dumb money, not anymore today). Now it is pretty much sophisticated handicappers against sophisticated bettor/handicappers.

singunner
04-01-2008, 11:06 PM
The problem is that spread between the natural odds and real odds is now at a point that it is pretty much unbeatable without a healthy rebate.
In the old days, and I know I've made this point over and over, there were no Beyer figures and there was a lot more blind public money (no slots and very little other gambling competition made it so the pools were full of dumb money, not anymore today). Now it is pretty much sophisticated handicappers against sophisticated bettor/handicappers.

I'm afraid I have to disagree. An informational edge can give you a huge advantage. Normally this takes the form of people actually attending a track and getting a feel for the horses or having inside information. Alternatively, you could find a way to do something that nobody else has done before.

With all the data collected about every single horse race, it's easy to feel overwhelmed. That's why computers have become so important. Beyer Speed Figures were great, but now that everyone has access to them, they've become worthless. What you need is something unique that hardly anyone else has access to. Modern handicappers have not even scratched the surface of what is possible with a sophisticated statistical analysis.

Norm
04-01-2008, 11:10 PM
The problem is that spread between the natural odds and real odds is now at a point that it is pretty much unbeatable without a healthy rebate.
In the old days, and I know I've made this point over and over, there were no Beyer figures and there was a lot more blind public money (no slots and very little other gambling competition made it so the pools were full of dumb money, not anymore today). Now it is pretty much sophisticated handicappers against sophisticated bettor/handicappers.
I have to agree that the difference between the sets of odds is a lot thinner than it used to be. In the old days profits were handsome, now-a-days profits are more modest even though the average serious player has increased his win percentage by many points due to the vast array of additional information. Today, I have to exercise a level of discipline that was unnecessary years ago, passing on many races that I would have played back then. I think the biggest obstacle for the modern player is not the 'take' (it would be nice if the 'take' was lower, but wouldn't that just draw more money into the pool on a low-priced horse ?) and it's not the sophistication of modern players (it's true, but no one here is afraid to lock-horns at that level) but rather the lack of technical sophistication in the quickness of reporting bets on the tote. Accepting a play at 6-5 because the reliability of the pattern supports it is still an overlay until, 20 seconds after the gate opens it becomes 3-5 and therefore a bad bet. I'm not suggesting post-betting, just that the systems are too slow. Oddsmaven has posted some research in another thread here that addresses this new-age problem. While there are still playable patterns available that get around this, the game would be far more profitable and offer a lot more plays if there was just a bit more certainty regarding final odds. I know you can never be 100% certain, that's not a reasonable expectation, but the bottom falls out after the bell all-too-many times these days. Wrestling with this one is the modern 'cappers biggest challenge.

Cangamble
04-01-2008, 11:21 PM
I'm afraid I have to disagree. An informational edge can give you a huge advantage. Normally this takes the form of people actually attending a track and getting a feel for the horses or having inside information. Alternatively, you could find a way to do something that nobody else has done before.

With all the data collected about every single horse race, it's easy to feel overwhelmed. That's why computers have become so important. Beyer Speed Figures were great, but now that everyone has access to them, they've become worthless. What you need is something unique that hardly anyone else has access to. Modern handicappers have not even scratched the surface of what is possible with a sophisticated statistical analysis.

The playing field has been too leveled. Sure, there are some angles that could be slightly profitable, but not enough when taking in margin of error over time.

The spread between the real odds and the natural odds now are too close.
Without a rebate, all I can say is good luck to you.
In other words you can't make money on flipping a coin over time if you also have to overcome a takeout.

singunner
04-02-2008, 12:34 AM
I can understand why you feel the field is too level, but horse racing has become largely about technology. The thing with technology is that it always seems like it hit a wall, then someone surpasses everyone else's expectations and it becomes the new norm.

GameTheory
04-02-2008, 12:38 AM
I can understand why you feel the field is too level, but horse racing has become largely about technology. The thing with technology is that it always seems like it hit a wall, then someone surpasses everyone else's expectations and it becomes the new norm.You mean like with SinStats? What do you mean by "competitive connections" anyway?

singunner
04-02-2008, 12:59 AM
I guess since I'm not selling anything yet, maybe the moderators won't get mad at me. Rereading my posts, it sounds like I'm pushing what I've made, but I don't think what I made is the only way to success. In fact, I'm sure there are a lot of ways to get a positive ROI that haven't been discovered yet.

Regarding SinStats, it's the project I've been working on for the last year. It uses an advanced statistical analysis algorithm to look at how horses compare based on a single variable. That is to say, it doesn't look at trainers or jockeys or running patterns or pace or whatever people are using to handicap this week. I don't make any crazy claims about it. All my output for the last two years is downloadable in Excel files on the site.

I really didn't want to get into this without being an advertiser, but my views are highly influenced by my own experience working on this project. I am one of those "whiz kids" you used to hear about, and horse racing has become a very interesting area for me to focus on. It's hard to separate my opinions from my research.

This post feels way off topic, and I apologize if I am out of line.

GameTheory
04-02-2008, 01:09 AM
I'm sure when you *do* start selling something, you'll become an authorized advertiser, right?

I am really just wondering what a "competitive connection" is -- not your whole algorithm -- just a hint?

singunner
04-02-2008, 01:26 AM
Seeing how much I've gotten from this board and how much I've grown from it, it's not a question of whether I want to become an advertiser, but whether they'll have me.

As for "competitive connections"... they're.... the relationship between horses? I define everything in the program mathematically, explaining it in English is not my forte. Of course, the basis of handicapping is comparing horses, but there's comparing horses, and then there's comparing horses... Wow, that's not helpful. Let me put it this way: a sophisticated handicapper looks at maybe 5 or 10 variables and ends up with a few hundred/thousand data points per race. My program looks at 1 variable and routinely finds hundreds of thousands (sometimes millions) of data points. Where most people were looking for breadth, I looked for depth.

Robert Fischer
04-02-2008, 12:28 PM
to the original point - absolutely correct. The slots are an easy reminder. It seems they are in a lot of places horseplayers play now, and some nice new places to play horses have been built around slots and casino-like games... Some of them proudly return what 80 - 90%?, but it is compounding..

on racing a positive expectation skill game- there is an attainable positive expectation somewhere up to about 50cents on every dollar. Somewhere, I sure don't know where... 50 is very high, and it would be hard to believe if someone is meeting or exceeding that, but it could be possible if you have a huge bankroll and can afford to be very selective and patient. 20-25cents on the compounding dollar is a more realistic master skill level. I am talking about consistently making your high value plays. There is a huge misconception that horseplaying is about a jackpot. It is a skill and a job. It requires skill and hard work. You can hit a pick 6 or a super high~5 or a huge superfecta... and say at the end of the year you made 50 cents on every dollar = that is not what I am talking about. Unless you made those plays with a positive expectation (you had a value edge on the pick 6 or super and then you only wagered the appropriate portion of your bankroll). Otherwise it is gambling. Nothing wrong with gambling winning or losing. It does most often cloud the discussion of positive expectation limits.

on take - take is the fee you gladly pay to play The Public in a parimutuel game.:liar: Before you invest any money you make a conservative estimate as to the hit% of the outcome and the payout for the hit. You make this estimate already accounting for the takeout. My horse has at least a 40% chance of winning and it will go off at least 2-1. Thats 20cents on the dollar after takeout. Play like this and allow for some bonehead human error and I am up 10cents on every dollar for the month.:lol: How did I do it?? Maybe the public is betting a weak favorite or they can't see the way the track is playing... whatever.. If it fits your demands you buy the ticket. But if they want to raise the take another 10%- then they can go to hell!



:)

badcompany
04-02-2008, 01:14 PM
If the average takeout rate was 40% it still wouldn't be a negative expectation game by definition, but at what point does one drop the conventional definition?

I don't think you can arrive at a specific % where the game is unbeatable (except, of course 100% takeout). It's more a matter of whether the game is WORTH trying to beat. At 20% takeout, ~2% of the players would be able to show a longterm profit (Formula2002 used a standard dev equation in another thread that arrived at this conclusion) and the amount of time those 2% invest would make their hourly wage very low, because, even if you're very selective in the races you play, you still have to look at as many races as possible in order to spot opportunites.

The point I'm trying to make is that if you beat the game but make less than minimum wage doing so, did you really beat the game?

singunner
04-02-2008, 01:31 PM
The point I'm trying to make is that if you beat the game but make less than minimum wage doing so, did you really beat the game?

There are very few games in the world where twenty out of every thousand can make a long term profit playing them. There are very few games in the world that even offer a way to get back the money you put into them.

Cangamble
04-02-2008, 02:19 PM
There are very few games in the world where twenty out of every thousand can make a long term profit playing them. There are very few games in the world that even offer a way to get back the money you put into them.
Betfair has an average 3% takeout, and that is only when you win.
That is on all types of bets including sports betting.
But even sports betting averages around 5% when you take winning and losing into consideration with bookies.
And the odds in sports betting aren't a 50-50 flip of the coin. They are made so that each side theoretically will have the same action on them, so you are really betting against the public.
I'm not impressed with the 20 out of 1000 winners, no do I think it is accurate. I believe it is less in todays environment without a rebate.

jfdinneen
04-02-2008, 02:40 PM
As we are all aware, given the parimutuel nature of our sport, it is imperative to find overlays in the various markets in order to be profitable over the long-term.

Given this basic requirement, I would advise all beginners to calculate a simple "Actual / Expected Index" (AEI) at least monthly (if not weekly) in order to gauge how well they are performing against the competition. For example, if we look at win markets only and if we assume that the best estimate of a horse's probability of winning is the public odds ("Wisdom of Crowds"), then we can calculate the AEI as follows:

Expected = SUM(1/DecimalOdds) [For all bets]
Actual = COUNT(All Winners)
AEI = (Actual / Expected) - 1 [If positive, then you are currently finding overlays and you probably have an edge over the competition]

For other markets (e.g., exotics), the calculation of expected winners and actual winners is a little more complex.

John

DeanT
04-02-2008, 02:55 PM
and the amount of time those 2% invest would make their hourly wage very low, because, even if you're very selective in the races you play, you still have to look at as many races as possible in order to spot opportunites.

The point I'm trying to make is that if you beat the game but make less than minimum wage doing so, did you really beat the game?

Just an honest question: Have you known a winner? I know a few, and they sure as hell aint working for minimum wage. If their bankroll was like $80 maybe, but not when you are slinging thru hundreds of thousands, or millions per annum.

You can make 0.5% ROI in this game and make significant money.

badcompany
04-02-2008, 03:23 PM
Just an honest question: Have you known a winner? I know a few, and they sure as hell aint working for minimum wage. If their bankroll was like $80 maybe, but not when you are slinging thru hundreds of thousands, or millions per annum.

You can make 0.5% ROI in this game and make significant money.

I've never met a professional horseplayer, but, I'm sure there are a FEW out there. There was one in last year's World Series of Poker, his last name was Rosenthal. The commentator was making jokes about it, "No one wins at horses!"

That said, I live on the Upper Eastside of Manhattan. One could make a strong case that there are more wealthy people here than anywhere in the country. I'd bet not a single one would list Horseplaying as his primary source of income. If betting horses were such a great game, why wouldn't any of these masters of the universe have gotten in on it?

I stand by my opinion that horseracing is a great pastime, if not taken to excess, but is a horrible way to make money.

ryesteve
04-02-2008, 04:43 PM
If betting horses were such a great game, why wouldn't any of these masters of the universe have gotten in on it?Who said it was easy to make a living at it? Not only is it hard, it requires an unusual emotional makeup. I understand where you're coming from, since it's not something I would ever attempt, but at the same time, I can't close my eyes to the fact that there are people doing it, and doing quite well at it.

Bill Olmsted
04-02-2008, 04:59 PM
Any seasoned horseplayer has the requsite skills to make serious money trading stock via a discount online broker. At $7.00 a trade, the "take" is zip when you are buying and selling thousands of shares. Best, you don't lose your entire bet if your stock or option goes against you; the advantages of stock trading over horseplaying are just too numerous to list. So if it's pure money you're after, forget about horses and learn how to trade. But horseplayers do possess an "unusual emotional makeup" so we gladiy accept this ultimate challenge.

B :)

DeanT
04-02-2008, 05:30 PM
That said, I live on the Upper Eastside of Manhattan. One could make a strong case that there are more wealthy people here than anywhere in the country. I'd bet not a single one would list Horseplaying as his primary source of income. If betting horses were such a great game, why wouldn't any of these masters of the universe have gotten in on it?



How can one argue with such indefatigable logic :)

Kelso
04-02-2008, 11:39 PM
[QUOTE=singunner]
As for "competitive connections"... they're.... the relationship between horses?
/QUOTE]

Is this similar to the BRIS method of rating horses based upon how they've finished against other horses ... and how those other horses raced aginst yet other horses ... etc, etc., etc?

The net result, in gross shorthand, is a ranking of all horses based strictly upon a circle of competitive finishes.

highnote
04-02-2008, 11:43 PM
Is this similar to the BRIS method of rating horses based upon how they've finished against other horses ... and how those other horses raced aginst yet other horses ... etc, etc., etc?

The net result, in gross shorthand, is a ranking of all horses based strictly upon a circle of competitive finishes.


I didn't know BRIS had a method like that. Do you know what it's called and how it works?

GameTheory
04-02-2008, 11:50 PM
I didn't know BRIS had a method like that. Do you know what it's called and how it works?From the "library" section at Brisnet, class ratings faq:

WHAT IS THE THEORY UNDERLYING THE RACE & CLASS RATINGS?
The Race & Class Ratings are based on the premise that a horse's performance in any given race can be accurately gauged by considering the horses which the individual has beaten; those that have beaten him; and by the margins involved. Final Time is NOT a factor used in calculating the ratings.

HOW ARE THE RACE & CLASS RATINGS CALCULATED ?
Using proprietary computer algorithms, the recent Class Ratings for ALL horses in their recent races are calculated, adjusted and then recalculated every time ANY horse crosses a finish line. This calculation process creates complex inter-relationships among ALL thoroughbred racehorses regardless of the track, distance, surface, or country the horses actually ran at. What makes the Race & Class Ratings such a powerful handicapping tool is the daily updates and constant adjustments made to the ratings which reflect the subsequent performances of ALL horses in EVERY race. The net result of this extensive data crunching is reliable, objective data which can accurately quantify the relative merit of any thoroughbred racehorse's performance.

Kelso
04-02-2008, 11:59 PM
Swetyejohn,
GameTheory nailed it. (I couldn't remember if it was Race Rating or Class Rating. Turns out to be both!)

singunner
04-03-2008, 12:24 AM
Interesting, but that's a lot simpler concept than my algorithm. I'd be interested in how it compares though. Does anyone know the ROI of mechanically betting that statistic?

bigchump
04-03-2008, 12:27 PM
That said, I live on the Upper Eastside of Manhattan. One could make a strong case that there are more wealthy people here than anywhere in the country. I'd bet not a single one would list Horseplaying as his primary source of income. If betting horses were such a great game, why wouldn't any of these masters of the universe have gotten in on it?

I stand by my opinion that horseracing is a great pastime, if not taken to excess, but is a horrible way to make money.
Someone who makes 20K or more per month and pays ZERO income taxes is not likely to list horseplaying as his primary source of income.

riskman
04-03-2008, 01:14 PM
Rober Fischer-Excellent Post, especially this:

"There is a huge misconception that horseplaying is about a jackpot. It is a skill and a job. It requires skill and hard work. You can hit a pick 6 or a super high~5 or a huge superfecta... and say at the end of the year you made 50 cents on every dollar = that is not what I am talking about. Unless you made those plays with a positive expectation (you had a value edge on the pick 6 or super and then you only wagered the appropriate portion of your bankroll). Otherwise it is gambling. Nothing wrong with gambling winning or losing. It does most often cloud the discussion of positive expectation limits. "

The bottom line is the ability to judge wether you are getting the best of it or not.You wager when you are getting value for your money. Easy to say--difficult to do--with all the distractions that are part of this game.