Posted by Jay Livingston
In the early months of this blog, I had some posts about The Wisdom of Crowds. The argument that James Surowiecki makes in his book of that name is that the collective wisdom of the general public, at least those who are interested in some topic, is superior to that of a few experts. (See this post for an example).
In other posts, I framed the issue as The Wisdom of Crowds vs. The Smart Money, and I wanted to see how the contest played out on the gridiron. Well, not the gridiron exactly, but in the betting about what went on there. My thesis was that the bookies (The Smart Money) were better at predicting outcomes than was the general public. (See here and here.)
Today, the NFL offers us two games that will provide more evidence. In the Steelers-Vikings game, the bookies made the Steelers a 4-point favorite. Since the beginning of the week, the public has been backing the Vikes. Three-fourths of the money has been bet on Minnesota. Usually, that would drive the line lower as bookmakers tried to make Steeler action more attractive in order to balance their books. But instead, the line has gone up to 6. Even with their books heavily weighted with Viking bets, the bookies seem to be asking the public to bet still more on the Vikes.
The Jets-Raiders game later this afternoon has a similar discrepancy. Jets opened as 7-point favorites. Public money came in on the Jets (about two-thirds of all action), but the line went down. Most books have it as 6 ½ or even 6, and it may go even lower by 4 p.m.
In both games, the bookies were responding not to the wisdom of the crowd but to the wisdom of a small number of sharp bettors, i.e, smart money.
If you follow the smart money, take the Steelers minus 6 (less, if you can find it) and Oakland plus as many as you can get (one online book still has them at 7). On the other side, the crowd, in its wisdom, 1) loves Bret Favre, and 2) doesn’t see how anyone can ever bet on the Raiders.
Sociologists, of course, will back the team whose head coach was a sociology major. Go Steelers!