The Wisdom of Crowds Finally Wins One

December 23, 2013
Posted by Jay Livingston

In several posts over the years, this blog has questioned the “wisdom of crowds,” at least when it comes to sports betting.  (This 2009 post has links to even earlier wisdom-of-crowds posts.) The Wisdom of Crowds says that when it comes to guessing – the weight of an ox, the location of lost ships, the right answer on “Millionaire,” the outcome of football games – you’re better off crowdsourcing than getting the advice of a single expert. None of us is as smart as all of us.*

In sports betting, if you want to know where the crowd is going, follow the money. And you can usually tell where the money is going by watching the point spread.  The spread is like a price – the greater the demand for a side, the more points you have to give up.  When the line moves – if a 4-point favorite becomes a 5-point favorite – chances are that bettors are demanding that side. 

Yesterday, the crowd cleaned up. In three games, so much money came in on the underdogs, that the bookies, in attempt to get action on the other side, made them the favorites.  On Saturday, the Dolphins were 3-point favorites over the Bills. Money kept coming in on the Bills. The books lowered the points Bills bettors were getting. By game time, if you wanted to bet the Bills, you’d have to give one or one-and-a-half points.

A change in the line of even of a half-point in the few hours before game time is often noteworthy; a change of a full point is significant.** A change of four points is extremely rare and indicates important action on the Bills.  As it turned out, the Bills won handily, 19-0. 

That was one of five games with large swings in the point spread. 

(Click on the chart for a larger view.)

The crowd was indeed wise this time around, winning four of the five.  The books took a bath. Yesterday was unusual in the number and magnitude of the changes.  Of course, over the course of the season, you could have made money by watching for crowdsourced line shifts and fading the public wisdom.

* This line, popular in management circles, is usually attributed to a Japanese proverb.  That sourcing fits with notions about East-West differences. For Americans, with our strong value on individualism and our belief in lone entrepreneurial heroes, “none of us is as smart as all of us” is a dazzling revelation; for the Japanese it’s just common sense.

** Bookmakers are reluctant to move the line at all for fear of being “middled.”  Suppose a  bookie takes a lot of action on Team A getting 3½  points over Team B, so he lowers the line to 2½ to attract money on the favorite. Now bettors respond and bet Team B minus the 2½. If the final score is Team B 17, Team B 14, the point difference falls in the middle of the two lines, and the bookie loses both bets.  (This is an extreme case. More often the change is only a half-point, say from 7 to 7½, and the risk is not a middle but an “edge” – one bet is a push, the other a loss.

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