> Most individuals are going up against these very sophisticated statistical models created by teams of quants working with huge datasets that you have to pay substantial amounts to access.
There are two things you might do as a bookmaker:
(1) Perceive the truth of who is likely to do what, and set odds reflecting that perfect Platonic reality, but with a percentage taken off for yourself.
(2) Adjust the odds you offer over time such that, come the event, the amount you stand to collect on either side will cover the amount you owe to the other side.
You don't need to know the odds to use strategy (2). Nor do you need to reject bettors who are likely to be right.
I have worked in the betting industry for several years. And the reason I'm writing is to tell you that while (2) sound logical, it was not used during my time in the industry. Or to be more precise, of course the odds are adjusted all the time to balance the market, prevent arbitrage etc, but it was also very common to have a 'loss leader bet', usually on the favourite, where the betting company would take a loss or make very little money if the favourite wins (but if that happens the customers still don't make a lot, because the odds are already low, and betting on a favourite is not a winning strategy because the real fav loss probability is higher than the odds would suggest). OTOH what is also often done is when 'real odds' are very high (low probability), the odds that are offered are way lower than the probability would suggest. So if 'real odds' are 100:1, the company would offer 50:1, so, even taking into account the company margins, you as a customers are never offered anything close to the real probability and as a consequence unless you are exceptionally good can never make money (and if you do your are banned).
Strategy (2) doesn't tell you how to come up with the initial prices, and bookies can potentially lose a significant amount from giving "bad" initial prices. If an individual is winning a lot of money from a bookie repeatedly because of these bad initial prices, then it is a sign that they might have a better model than the bookie, and so it is in the bookie's interest to ban them, since sports betting is a zero-sum game: every dollar you win from a bookie is a dollar that the bookie loses.
I worked for a gambling syndicate. We often made money from bad initial prices. Many bookies tolerated us because they wanted to know what we thought was mispriced and rapidly adjusted their odds after we started betting.
It was a balancing act though. They really wanted to know what we were doing, but didn’t want to lose too much to us. So there was some give and take / bartering around the fair value of our information in the form of our accounts being banned and limited or bets being voided. But they definitely didn’t want to eradicate us.
> If an individual is winning a lot of money from a bookie repeatedly because of these bad initial prices, then it is a sign that they might have a better model than the bookie, and so it is in the bookie's interest to ban them
I don't think this follows. If an individual is winning a lot of money repeatedly in this way, it is a sign that the bookie should give their bets a lot of weight when adjusting prices. But that information is something the bookie might want.
If bookies want better prices they can pay for prices from places that have good models. Or they can buy / build their own models. What you're suggesting doesn't make sense from an economic perspective.
See https://news.ycombinator.com/item?id=45483917 , sidethread.
Thanks! I definitely have more to learn in this area.
The vast majority of small bookmakers in the UK don't come up with their own prices. They either copy other bookmakers or pay for them.
They also typically use off the shelf software for book management and risk.