Category: Research

Risk vs Uncertainty

BettingIsCool December 27, 2016

In sports betting it’s sometimes hard to judge where you stand on your way to profits. Is it a matter of good fortune (or bad fortune for that matter) or are you genuinely holding an edge over the bookmaker(s)?

To answer this question a proper understanding of risk and uncertainty helps.

Risk, as first articulated by the economist Frank H. Knight in 1921, is something that you can put a price on. Say that you’ll win a poker hand unless your opponent draws to an inside straight: the chances of that happening are exactly 1 chance in 11. This is risk. It is not pleasant when you take a bad beat in poker, but at least you know the odds of it and can account for it ahead of time. In the long run, you’ll make a profit from your opponent making desperate draws with insufficient odds.

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The 80-20 Rule

BettingIsCool December 22, 2016

When it comes to poker, sports betting or any other game of chance your profits are almost never determined by your skills alone, but also by your opponents’ skills.

I was merely in the upper middle class of poker players and needed to be in a game with some bad ones to be a favourite to make money. Fortunately, there were plenty of these bad players – what poker players call fish – during the poker boom years.

There is a learning curve that applies to poker and to most other tasks that involve some type of prediction. The key thing about a learning curve is that it really is a curve: the progress we make at performing the task is not linear. Instead, it usually looks something like the figure below – what I call the Pareto Principle of Prediction.

using-the-pareto-principle-in-betting-graph

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