Superbowl 2010 – The Wisdom of Crowds vs. The Smart Money

February 7, 2010
Posted by Jay Livingston

The Wisdom-of-Crowds theory says that the “crowd” – the average of interested speculators – is smarter than any one expert. If you want to figure out the weight of an ox or the location of a lost ship or the outcome of an election, go with the flow.

The contrarian position, at least on football games, says that the bookies are smarter than the general public. (For an earlier post on this topic, with links to still earlier posts, go here .)

Here’s what that means in the Superbowl. The bookmakers’ initial line had the Colts favored by 3½ to 4 points.* The money poured in on the Colts.

Bookmakers do not like to change their lines, especially by more than a half-point,** but in order to attract money on the Saints, they moved the line up to 5½ or even 6. That, plus some injury news on a Colts player, brought in Saints money, so much that some books moved the line down as low as 4 ½. The public is back on the Colts, and the line is going back up. As of this writing (11:45 a.m.), at some online, offshore books, you can get the Saints plus 6 (though you may have to pay 15% rather than the customary 10% on losing bets).

If you believe in the Wisdom of Crowds, you’ll follow the herd, give the points, and take the Colts. If you are a Smart Money contrarian, you’ll take the Saints and the points. (You’ll wait till game time draws closer, hoping that even more public money comes in on the Colts, driving up the line even higher.)

Of course, the Superbowl is one game, far too small an n to confirm one theory or another. On the whole this season, my impression is that public teams did better than usual – not enough to put the bookies out of business, but paring their profit margins somewhat.

If I were betting tonight, I’d take the Saints. I might even take them to win on the field and repay me to the tune of $170 to $100. But the Steelers didn’t even make it to the playoffs this year, so who really cares?

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* Strictly speaking, the bookmakers set the line not to balance score but to balance the action. With an equal amount bet on each side, they make their 5% regardless of who wins on the field. But, especially in big games that will draw a lot of action, the initial line closely reflects the books’ assessment of the teams. (Old sax players may also be fond of Balanced Action.)

** A bookmaker who moves the line runs the risk of getting “middled.” Suppose the original line is Colts -3 ½ and everyone bets the Colts. The bookie raises the line to 5 and everyone now bets the Saints +5. If the final score is Colts 35, Saints 31, the outcome falls in the middle of the two lines, and the bookie loses all bets.

UPDATE 9:45 p.m.: If you’ve read this far, you probably know the outcome. The Saints won 31-17. The crowd was wrong on the point spread and on the under/over.