Staking plans in sports betting under unknown true probabilities of the event

Barge-Gil, Andrés and García-Hiernaux, Alfredo (2019): Staking plans in sports betting under unknown true probabilities of the event.

Abstract

Kelly staking method has been shown to maximize long-term growth of bankroll. However, it demands for the estimation of the true probabilities for each event. As a result many sport tipsters have abandoned this staking method and opted for a flat staking plan ('unit loss') or, less frequently, an 'unit win' plan. We analyze under which assumptions these methods correspond to the Kelly staking method and propose a different staking plan: 'unit impact,' under the hypothesis that this plan fits better with the Kelly staking method. We test our predictions using a betting database from Pyckio, one of the most popular tipster platforms in the world. Results show empirical support for our hypothesis.

• Item Type: MPRA Paper
• Language: English
• Keywords: sports betting; Kelly criterion; staking methods; tipster
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; L - Industrial Organization > L8 - Industry Studies: Services > L83 - Sports ; Gambling ; Restaurants ; Recreation ; Tourism

References

Baker, R. D. and McHale, I. G. (2013). Optimal betting under parameter uncertainty: improving the kelly criterion. Decision Analysis, 10(3):189–199.

Benartzi, S. and Thaler, R. H. (2001). Naive diversification strategies in defined contribution saving plans. American economic review, 91(1):79–98.

Collignon, H. and Sultan, N. (2014). Winning in the business of sports. AT Kearney, page 1.

Croxson, K. and James Reade, J. (2014). Information and efficiency: Goal arrival in soccer betting. The Economic Journal, 124(575):62–91.

Eisenberg, B. and Diao, S. (2017). Properties of the kelly bets for pairs of binary wagers. Statistics & Probability Letters, 125:215–219.

Ethier, S. N. (2004). The kelly system maximizes median fortune. Journal of Applied Probability, 41(4):1230–1236.

Feddersen, A., Humphreys, B. R., and Soebbing, B. P. (2017). Sentiment bias and asset prices: Evidence from sports betting markets and social media. Economic Inquiry, 55(2):1119–1129.

Kelly, J. (1956). A new interpretation of information rate. Bell Sys. Tech. Journal, 35:917–926.

Levitt, S. D. (2004). Why are gambling markets organised so differently from financial markets? The Economic Journal, 114(495):223–246.

Maclean, L. C., Thorp, E. O., and Ziemba, W. T. (2010). Long-term capital growth: the good and bad properties of the kelly and fractional kelly capital growth criteria. Quantitative Finance, 10(7):681–687.

Smith, M. A., Paton, D., and Williams, L. V. (2009). Do bookmakers possess superior skills to bettors in predicting outcomes? Journal of Economic Behavior & Organization, 71(2):539–549.

Snowberg, E. and Wolfers, J. (2010). Explaining the favorite–long shot bias: Is it risk-love or misperceptions? Journal of Political Economy, 118(4):723–746.

Thorp, E. O. (2008). The kelly criterion in blackjack sports betting, and the stock market. In Handbook of asset and liability management, pages 385–428. Elsevier.