Tuesday, January 13, 2009

Why you lost the office pool

Are you getting frustrated because you never win in the office sports pool despite being an expert? The problem is that office sport experts typically have some allegiance to a team or a country, and the subjective winning probabilities are higher for your idols than the objective probabilities. The receptionist, however, looks at rankings or seeds and objectively makes the best guesses.

Now think in more aggregate terms. Imagine the qualification for Euro 2008, the football tournament where countries need to play several games to reach the finals. People bet on those games and the market determines equilibrium odds. Are the markets odds the same everywhere? Sebastian Braun and Michael Kvasnicka claim that there are not, and typically the odds of the local country are too high. Thus there are clear arbitrage opportunities available, but not for long now that this is known.

1 comment:

Kansan said...

Interesting to see that Swedes seem to be self-deprecating.