I recently had the pleasure of recording a betting podcast with Joseph Buchdahl (which you can listen to below). While we covered various topics during our hour-long conversation, the intention was to address the question of why betting is so hard. Of course, the answer to this is far from simple but it is something that everyone who is serious about betting should try to understand.
Understanding what betting actually is
A common misconception about betting is that it is a test of your knowledge about a particular sport. Just because you’re knowledgeable about soccer or basketball, it doesn’t mean that it will translate into being able to make money from betting on those sports. As Nassim Nicholas Taleb writes in Antifragile: Things that Gain from Disorder; “it is unrigorous to equate skills at doing with skills at talking”.
The fact that (according to Marco Blume, Pinnacle’s Trading Director) sports fans are in the minority when it comes to Pinnacle’s trading department shows how unrelated sporting knowledge and the ability to think probabilistically about sport actually are.
It could be argued that it’s actually a disadvantage for bettors to have knowledge about the sport they are betting on as preconceived ideas may distort your judgement and decision-making. That said, when used correctly, this kind of knowledge could obviously be used to your advantage.
Betting is essentially a competition of who is the most efficient at predicting future outcomes. While you are placing your bet at a bookmaker and it is the bookmaker who collects if you lose and pays out if you win, it’s not just the bookmaker you are competing against – it’s other bettors too.
At face value, the bookmaker holds all the cards. They have more resources and more information to help them set odds, and they also have more money to risk getting it wrong. However, a lot of that will come from the betting market (especially at a volume-based bookmaker like Pinnacle).
This means there will be inefficiencies in a bookmaker’s odds, but very few will be able to take advantage of them before they are acknowledged and removed – this means it is a race amongst bettors to find the available value and take it before anyone else does.
Develop your skills and then you’ll need luck
As with anything you pursue in life where the aim is to benefit financially, you need to dedicate time and energy to enhance your betting skill. What many bettors fail to realise or comprehend is the amount of people out there doing exactly the same thing.
The bettors who continually manage to find an edge and exploit it enough to make a consistent profit are also the bettors who understand the importance of sample size when analysing results.
While it is true that competition often provides motivation, it is important to understand that the more skilled the betting market becomes, the more the influence skill has on your results reduces. That is to say, the greater the influence of luck becomes.
Michael Maubossin has written at length about the Paradox of Skill – something Joseph and I discussed during the podcast and something Joseph has also covered in a previous article for Pinnacle. This concept is certainly applicable to sports betting and can help us understand why it is so difficult to achieve long-term success.
In short, the Paradox of Skill separates the notion of skill across two dimensions – absolute skill and relative skill. Your absolute skill may be high, but as the difference between the very best and average levels of skill (within a betting market) decreases, the more difficult it is for skill to be a differentiator. Thus, while the amount of luck involved hasn’t changed, it becomes more pronounced in breaking up the now very small boundaries between levels of skill.
While the Paradox of Skill is relatively easy to understand, being able to acknowledge it and accept it as true is a different matter altogether. Betting becomes a lot more difficult (and potentially dangerous) when we fail to appreciate the influence luck will have on the outcome of an event we are betting on.
Why psychology makes things even more difficult
Another factor that bettors often struggle with when it comes to betting is understanding the impact psychology can have on decision making and perception of outcomes. There are a wide variety of aspects of psychology and biases that can influence what you bet on, when you bet, how much you bet and much more. Having an awareness of the impact psychological can have is of critical importance if you want to make consistent profit from betting.
Those who have enjoyed long term success in betting will have prioritised the process they use over the results they get.
Whether it’s gambler’s fallacy and a failure to understand the basics of probability, the illusion of control and a lack of appreciation for the role of luck or loss aversion and our tendency to prefer avoiding losses over acquiring equivalent gains, most of us have probably heard of some psychological concepts that apply to betting.
However, the list of concepts that can influence betting behaviour is much longer than most people can comprehend. This extends to the misjudgement of probability (namely the hot hand fallacy and favourite-longshot), how we process information (confirmation bias and anchoring bias) and even how we remember past events (availability bias and hindsight bias). That list could go on and on.
Will you ever know if you’re good at betting?
The aim of betting for a living may be to simply make money (exactly how much is dependant on each individual bettor) but this means there is a tendency for bettors to focus on the results. Some bettors will use a basic measure of profit and loss, while others will use the Pinnacle closing line to get a more accurate reflection of how efficient their predictions are.
As already explained, your results will often be influenced by luck and therefore it is important to shift focus from results to process. This also means as a bettor you have to become emotionally removed from winning or losing and the money you are risking (a very difficult task in itself).
Being good at betting is a real challenge, but the most difficult thing to grasp is that you may never actually know if you’re skilled or not (regardless of how much money you win or lose).
Those who have enjoyed long term success in betting will have prioritised the process they use over the results they get – even the best bettors in the world will have to deal with a period of losses.
The bettors who continually manage to find an edge and exploit it enough to make a consistent profit are also the bettors who understand the importance of sample size when analysing results. More novice bettors will likely fall victim to the law of small numbers (assuming results from a small sample will transmit to larger samples) and struggle to understand why losses suddenly occur more often than before.
Now the hard work begins
Once all of the above has been addressed, understood and (most importantly) taken on board, that’s when the hard work really begins in trying to find an exploitable edge in the betting market.
When you know how betting actually works, how influential luck can be on your results and the impact your psychological biases will have on the decision-making process, only then is pursuing a career in betting a worthwhile endeavour.
There are countless betting strategies that can help you find an edge but doing your own research and analyses will likely prove more beneficial in the long run (if your methods are already public knowledge then the bookmaker will have already accounted for them).
Once you have what you believe to be a profitable betting strategy and an exploitable edge, you then need to be able to dedicate time (to be able to place your bets the second they need to be placed) and money (to handle the inevitable losses) in order to see the benefits.
While you need to use the right staking method to ensure you don’t run out of bankroll, you also need to be psychologically prepared to lose (even the best bettors out there will lose more than 40% of the time) and patient enough to keep working away until you get the results you’re after.