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Old 03-26-2014, 02:56 PM   #1
Robert Fischer
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Redundancy

This thread is an attempt to introduce and discuss the concept of "redundancy" and how it applies to ticket structure and wagering.

If there is already a thread on this subject, forgive me for being redundant.

Quote:
Originally Posted by introductory snippet Nassim Taleb in "Antifragile"
Nature likes to overinsure itself. Layers of redundancy are the central risk management property of natural systems. We humans have two kidneys (this may even include accountants), extra spare parts, and extra capacity in many, many things (say, lungs, neural system, arterial apparatus)...
Quote:
Originally Posted by Merriam Webster definition
A part in a machine, system, etc., that has the same function as another part and that exists so that the entire machine, system, etc., will not fail if the main part fails

Quote:
Originally Posted by full reading Nassim Taleb in "Antifragile"
Something flashed when I heard “post-traumatic” during that London visit.
It hit me right there and then that these antifragile hormetic responses were just a form of redundancy, and all the ideas of Mother Nature converged in my mind. It is all about redundancy.

Nature likes to overinsure itself. Layers of redundancy are the central risk management property of natural systems. We humans have two kidneys (this may even include accountants), extra spare parts, and extra capacity in many, many things (say, lungs, neural system, arterial apparatus), while human design tends to be spare and inversely redundant, so to speak—we have a historical track record of engaging in debt, which is the opposite of redundancy (fifty thousand in extra cash in the bank or, better, under the mattress, is redundancy; owing the bank an equivalent amount, that is, debt, is the opposite of redundancy).

Redundancy is ambiguous because it seems like a waste if nothing unusual happens. Except that something unusual happens—usually.

Further, redundancy is not necessarily wussy; it can be extremely aggressive. For instance, if you have extra inventory of, say, fertilizers in the warehouse, just to be safe, and there happens to be a shortage because of disruptions in China, you can sell the excess inventory at a huge premium. Or if you have extra oil reserves, you may sell them at a large profit during a squeeze.

Now, it turns out, the same, very same logic applies to overcompensation: it is just a form of redundancy. An additional head for Hydra is no different from an extra—that is, seemingly redundant—kidney for humans, and no different from the additional capacity to withstand an extra stressor. If you ingest, say, fifteen milligrams of a poisonous substance, your body may prepare for twenty or more, and as a side effect will get stronger overall. These extra five milligrams of poison that you can withstand are no different from additional stockpiles of vital or necessary goods, say extra cash in the bank or more food in the basement. And to return to the drivers of innovation: the additional quantities of motivation and willpower, so to speak, stemming from setbacks can be also seen as extra capacity, no different from extra boxes of victuals.

A system that overcompensates is necessarily in overshooting mode, building extra capacity and strength in anticipation of a worse outcome and in response to information about the possibility of a hazard. And of course such extra capacity or strength may become useful by itself, opportunistically.

We saw that redundancy is opportunistic, so such extra strength can be used to some benefit even in the absence of the hazard. Tell the next MBA analyst or business school professor you run into that redundancy is not defensive; it is more like investment than insurance. And tell them that what they call “inefficient” is often very efficient. Indeed, our bodies discover probabilities in a very sophisticated manner and assess risks much better than our intellects do. To take one example, risk management professionals look in the past for information on the so-called worst-case scenario and use it to estimate future risks—this method is called “stress testing.” They take the worst historical recession, the worst war, the worst historical move in interest rates, or the worst point in unemployment as an exact estimate for the worst future outcome. But they never notice the following inconsistency: this so-called worst-case event, when it happened, exceeded the worst case at the time.
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Old 03-26-2014, 03:26 PM   #2
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So how do YOU use redundancy in our ticket structure?
How does anyone?
How does it even relate to ticket structure??

I'll give it a try here and hopefully you guys will contribute something.

Looking at the definition, and the context in which Taleb uses the word "redundancy", one of the keys here is that it is a 'Part' in the system, that has 'the same function' as another part.


So what are the "parts" of a ticket??

At least one way to look at it would be that the horses, the selections are the parts.
some example tickets:
$20 Win on
$5 Exacta over the - The "Parts" are the 5horse and the 3horse.


What are the "Functions" that those parts have?
$20 Win on - The 5horse's function is that he must win in order for the ticket to pay out.
$5 Exacta over the - Here the 5horse must win, and the 3horse must come in 2nd.


So how can we introduce another "Part" into those systems, where the additional "part" has "the same function" as the original parts from the above example?

$20 Win on and - Now we have bet 2 horses to win. The 3horse has the same function as the 5horse.


$5 Exacta over the - Here the 7horse has the same function as the 3horse in this exacta.
Note: that the 5horse has no redundant part in this example.


Advanced: also note that if the win and exacta tickets in these examples were looked at as 1 combined wager strategy, that it complicates the idea of redundancy with multiple parts performing the same function only within their individual tickets.
To use the analogy of nature, - If the horse that has to win is our kidney(s), then we have 2 kidneys on our win ticket, but not on our exacta ticket, and not if we looked at the aggregate which is our combined Win and Exacta tickets in terms of it being a total wagering strategy.


Lots to think about.

Do you agree with using redundancy?
Are there some situations which call for using redundancy, and others which call for playing straight singles? What characteristics do those situations have? What are the tradeoffs?
When incorporating redundancy, should that redundancy be covered throughout each ticket for a given race? Should the "aggregate ticket" incorporate that redundancy?

Simply offering a new perspective on an old problem.


Quote:
Originally Posted by Merriam Webster definition
A part in a machine, system, etc., that has the same function as another part and that exists so that the entire machine, system, etc., will not fail if the main part fails
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Last edited by Robert Fischer; 03-26-2014 at 03:39 PM.
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Old 03-26-2014, 04:47 PM   #3
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Betting on 2 horses to win isnt really betting on 2 different entities to win. For example, lets say you place two win bets, and stick 2 dollars to win on two different 3-1 shots......what you're essentially doing is betting 4 dollars to win on an even money shot, you have created your own "entry" it works out exactly the same, people feel that they're "betting against themselves" but they're really not, it just SEEMS that way.
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Old 03-26-2014, 08:27 PM   #4
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redundancy cont.

Quote:
Originally Posted by Stillriledup
Betting on 2 horses to win isnt really betting on 2 different entities to win. For example, lets say you place two win bets, and stick 2 dollars to win on two different 3-1 shots......what you're essentially doing is betting 4 dollars to win on an even money shot, you have created your own "entry" it works out exactly the same, people feel that they're "betting against themselves" but they're really not, it just SEEMS that way.
I agree.
You aren't betting against yourself, you've simply re-shaped the wager.

Ideally, in your example you have already tossed the favorite, and both of your 3-1 shots are overlays with value.

The problems come in when you have handicapped one of those 3-1 shots to be an overlay, and the other 3-1 shot to be an underlay.

for Example:
lets say horse "A" is a 3-1 shot (fair hit% = 25%) and you think that horse A should really be around 5-2 (fair hit% of ~28.57%).
At the same time, horse "B" is a 3-1 shot (fair hit% = 25%) however - you think that horse B should really be around 7-2 (fair hit% of ~22.22%).

given a $1000 bank and using Kelly Criterion , we get the following:

A only: Edge=~ 3.57% Hit%=28.57% Wager Size=$47.60

B only: Edge=~ -2.78% Hit%=22.22% Wager Size=$No Bet

both A and B : Edge=~ 0.79% Hit%=50.79% Wager Size=$15.80


So we've reduced our edge enough, that even with the increased hit%, Kelly calls for a reduction of our wager size by about a third.

On paper that would be an easy decision = Bet horse "A" only.

It's one thing to estimate probabilities on paper, and another entirely for flesh and blood animals and jockeys, and race dynamics to cooperate.

These are the type of real-life problems where we have to decide whether the risk management that we gain from the redundancy of betting two win horses is worth the tradeoff in value.
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Last edited by Robert Fischer; 03-26-2014 at 08:28 PM.
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Old 03-26-2014, 10:03 PM   #5
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The is the reduntant part of this wager for me.That horse is serving the function of providing you with a winning wager even if your second place horses aka the & do not perform their reduntant function of finishing second..Hope everyone could follow this convoluted example.....
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Old 03-26-2014, 10:49 PM   #6
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Quote:
Originally Posted by fmolf
The is the reduntant part of this wager for me.That horse is serving the function of providing you with a winning wager even if your second place horses aka the & do not perform their reduntant function of finishing second..Hope everyone could follow this convoluted example.....

That's true. Your example illustrates a new perspective from what I had even considered. The separate win bet on the 5, would be redundant to the place horses in the exacta. Interesting. Another way to look at it.
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Old 03-27-2014, 07:45 AM   #7
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Mr. Taleb is always interesting but sometimes doesn’t make much sense. He portrays himself as a risk manager, yet in one breath he’s taking large unhedged positions and in the next he’s hedging against 25-sigma events. The key to profitability is constructing market-neutral hedges in all overlays in all markets with optimally-sized investments. That will cancel out the risk, leaving the alpha.
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Old 03-27-2014, 01:10 PM   #8
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Quote:
Originally Posted by Magister Ludi
Mr. Taleb is always interesting but sometimes doesn’t make much sense. He portrays himself as a risk manager, yet in one breath he’s taking large unhedged positions and in the next he’s hedging against 25-sigma events. The key to profitability is constructing market-neutral hedges in all overlays in all markets with optimally-sized investments. That will cancel out the risk, leaving the alpha.
I am very interested in reading more from you about these market-neutral hedges. Would love to see a basic example relating to ticket structure for a single race and aggregate, if you don't mind sharing.
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Old 03-27-2014, 01:46 PM   #9
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Quote:
Originally Posted by Magister Ludi
Mr. Taleb is always interesting but sometimes doesn’t make much sense. He portrays himself as a risk manager, yet in one breath he’s taking large unhedged positions and in the next he’s hedging against 25-sigma events.
I am undecided about Taleb. I find his writing inspirational and thought provoking, but I have yet to embrace his actual strategies.

Taleb seems to promote a "convex"(which he sometimes calls a 'barbell strategy'...) investment strategy where he advises avoiding risk, while exposing yourself to positive black swans. It's a seductive theory.

In general I think it has merit. Keep yourself open to positive black swans. There are ways to accomplish that without marrying your ticket structure to it.

There are a number of problems that arise when such a theory is applied to horseplaying.

First, he states a precondition, that medium-risk plays are "incomputable".

Then he advises that 90% of your investment be placed in extremely safe wagers, while the remaining 10% be as speculative as possible.

In horse racing language that could translate to the following example:

$1000 bankroll
split into 2 banks
$900 bank
$100 bank

The $900 bank goes toward extreme favorites to show(not all at once, maybe a conservative $50 per wager).

The $100 bank singles some 20cent Rainbow Six 'hopeless' long shots, and buys some POWERBALL tickets.

This can't be a sound strategy.

Taken literally, it has reduced the horseplayer to playing the lottery. Resigning yourself to hoping that you hit a 1/175million shot.

Either you have the skill to consistently predict those medium-risk plays that Taleb calls "incomputable", or you don't.

I do think there is value in his concepts and the stimulation of discussion.
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Old 03-27-2014, 03:27 PM   #10
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How about using a solid, good hit rate/positive ROI win method to provide cashflow for lower hit rate/much higher ROI plays, like superfectas? That's what I do in my play, I use the consistent return from win betting to fund my superfecta play, allowing more spread, and a larger base ticket multiplier ($3 versus $1 or less) when the race should pay well (TC and BC races are a good example, but can apply to lesser races with large fields or more contentiousness, etc.).
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Old 03-27-2014, 05:38 PM   #11
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Quote:
Originally Posted by raybo
How about using a solid, good hit rate/positive ROI win method to provide cashflow for lower hit rate/much higher ROI plays, like superfectas? That's what I do in my play, I use the consistent return from win betting to fund my superfecta play, allowing more spread, and a larger base ticket multiplier ($3 versus $1 or less) when the race should pay well (TC and BC races are a good example, but can apply to lesser races with large fields or more contentiousness, etc.).
That sounds more realistic, especially if you are good at Superfectas.
It makes sense that if your specialty wager is a lower hit rate/higher ROI play that you will balance out your total strategy with some higher percentage plays like Win betting. In a way, it is also similar to what Fmolf was saying about backing up exotics with a win wager.
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Old 03-28-2014, 05:38 PM   #12
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Quote:
Originally Posted by Robert Fischer
I am undecided about Taleb. I find his writing inspirational and thought provoking, but I have yet to embrace his actual strategies.

Taleb seems to promote a "convex"(which he sometimes calls a 'barbell strategy'...) investment strategy where he advises avoiding risk, while exposing yourself to positive black swans. It's a seductive theory.

In general I think it has merit. Keep yourself open to positive black swans. There are ways to accomplish that without marrying your ticket structure to it.
I do believe his philosophy would suggest betting opposite or against the bridge jumper, or someone looking for the antifragile in small fields. You want to be against those with high or +80% coverage. You take a 60% loss if the favorite runs in the money, and therefore aren't entirely wiped out. When the favorite runs out of the money, you might get a 4000% return on show bets. In theory it works.
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Old 03-28-2014, 08:41 PM   #13
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Quote:
Originally Posted by pondman
I do believe his philosophy would suggest betting opposite or against the bridge jumper, or someone looking for the antifragile in small fields. You want to be against those with high or +80% coverage. You take a 60% loss if the favorite runs in the money, and therefore aren't entirely wiped out. When the favorite runs out of the money, you might get a 4000% return on show bets. In theory it works.
Interesting.
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Old 03-29-2014, 02:42 PM   #14
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Kelly likes it?

More from the example in post #4.

We had two 3-1 shots.

Horse "A" was an overlay (we thought he should really be 5-2),
Horse "B" was an underlay (we thought he should really be 7-2).

Quote below shows the edge, hit%, and Kelly wager size for "A" or "B" or "A and B"

Quote:
Originally Posted by Robert Fischer
given a $1000 bank and using Kelly Criterion , we get the following:

"A" only: Edge=~ 3.57% Hit%=28.57% Wager Size=$47.60

"B" only: Edge=~ -2.78% Hit%=22.22% Wager Size=$No Bet

both "A and B" : Edge=~ 0.79% Hit%=50.79% Wager Size=$15.80


So we've reduced our edge enough, that even with the increased hit%, Kelly calls for a reduction of our wager size to about a third.

On paper that would be an easy decision = Bet horse "A" only.

It's one thing to estimate probabilities on paper, and another entirely for flesh and blood animals and jockeys, and race dynamics to cooperate.

These are the type of real-life problems where we have to decide whether the risk management that we gain from the redundancy of betting two win horses is worth the tradeoff in value.
So the Kelly criterion wager size is essentially saying that betting both of those horses is 33% as "good" as betting "A" only (or 66% "worse").

We can debate that the redundancy of using both horses provides us with risk management. However, provided that our handicapping is accurate, and our bankroll is sufficient, we will do much much better in the long run by simply betting horse "A".

How else can we manipulate such a wager?

What if we place more weight on the overlay "Horse A"?
We can wager in such a way that if "Horse A" wins, we make more of a profit, and if "Horse B" wins we break even.
With the tote odds @ 3-1 for both horses, we can accomplish this by wagering 3 parts on "Horse A" and 1 part on "Horse B".

By placing more weight on horse A, we've increased the aggregate edge of the total wager.

Simply betting equal wagers on both "A and B" results in an aggregate edge of ~0.79%.
Changing that wager to "3partsA+1partB" results in an aggregate edge of ~1.98%.

The numbers now look like this:

"3partsA+1partB" : Edge= ~1.98% Hit%=50.79% Wager Size=$38.73

So the Kelly criterion wager size is essentially saying that betting "3partsA+1partB" is 81% as "good" as betting "A" only. Also that betting "3partsA+1partB" is 2.45 times "better" than betting both "A and B" equally.

Kelly calls it an improvement over betting 2 horses equally, and it offers risk management in the form of cheap hit% over betting only the "A" horse, but in the long term it will be less effective than betting just the "A" horse, provided your handicapping is accurate.

I also don't think this weighted strategy is as "antifragile" as much as it is "robust". You aren't benefiting from disorder as much as you are surviving it.

Thought it was somewhat interesting that the Kelly wager size increased.


redundant recap:


(given a $1000 bank and using Kelly Criterion)

"A" only: Edge= ~3.57% Hit%=28.57% Wager Size=$47.60

"B" only: Edge= ~-2.78% Hit%=22.22% Wager Size=$No Bet

both "A and B" : Edge= ~0.79% Hit%=50.79% Wager Size= $15.80 ($8 win on "A and B")

"3partsA+1partB" : Edge= ~1.98% Hit%=50.79% Wager Size= $38.73 ($30 win on "A" + $10 win on "B")
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Old 04-13-2014, 04:41 PM   #15
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Quote:
Originally Posted by Magister Ludi
Mr. Taleb is always interesting but sometimes doesn’t make much sense. He portrays himself as a risk manager, yet in one breath he’s taking large unhedged positions and in the next he’s hedging against 25-sigma events. The key to profitability is constructing market-neutral hedges in all overlays in all markets with optimally-sized investments. That will cancel out the risk, leaving the alpha.
I've been researching some of the market neutral hedging stuff on my own.

It's interesting that in the investment field(is that the right term?), that many of the same principles of horseplaying apply. They also seem to have given more things a name and have gotten fairly advanced with a lot of the concepts. Right now I'm sticking to terminology and basic grasp of the concepts.
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