The Wisdom of Crowds is a phenomenon that financial markets have exploited when it comes to making predictions. So, does it work for sports betting too?
The idea behind the ‘wisdom of crowds’ is that a group’s collective judgments
The theory states that a large group of diverse individuals are in a position of making better, intelligent decisions than a small group of experts.
The conditions of the ‘Wisdom of crowds’ theory
The theory requires that the following four conditions be met before a crowd is considered wise as opposed to irrational.
- Decentralisation – People can draw on local knowledge and specialise
- Independence – People’s options should not be determined by those who are around them.
- Aggregation – Some mechanism should exist for turning personal judgments into a collective decision.
- Diversity of opinion – Every person should have private information even if it is an eccentric interpretation of the already known facts.
How the “wisdom of crowds” theory can be used in sports betting
The use of a betting exchange is crucial. It refers to a platform that aggregates a crowd’s opinion on uncertain outcomes in a sporting event. Although this looks remarkable, the betting public collectively forms the odds of an outcome through their actions and opinions (requesting certain odds and placing bets).
Odds may rise and fall, which sets at values that include all the information that the bettors have consumed. The price discovery is an ever-changing ideology that is never stationary because new information will always emerge, which arrives on an exchange. This prompts movements to occur.
The variability of opinion in betting exchange
Diversity forms the basis for wisdom, and it is where the whole idea of the wisdom of crowds lies.
Let’s take the example of an investor. He or she may have their finances spread over a wide range of several investments such as premium bonds, shares and ISA’s.
It is unlikely that all of the investments that the individual has put aside will come to pass. However, the wisdom that he or she gets from the diversity of having invested in many areas will sharpen their ideas and make them smarter.
By incorporating the varying ideas that they have formed, they will be in a better position to succeed than a person who invested in only one area.
How it works in betting
Diversity is also the basis of all competitive markets, and betting is no exception. Having a platform where betters can exercise their knowledge and share ideas is a basis
The larger the number of participants with different opinions that contribute to a betting outcome, the higher the chances of developing a successful outcome.
All participants will not share the same point of view that is why one bettor will agree to
The different prediction methods
Prediction methods also vary. Some bettors work on determining the probability of an outcome, in essence, finding value. Others go for a psychological approach that is often analytical and watch the direction and trends of the odds.
The aim is usually discovering biases. Other kinds of betting prediction methods include linear, dynamic, statics, and probabilistic.
The likelihood of success
Surprisingly, most of the approaches that the bettors use are wrong.
However, the pooling of these diverse ideas will encourage a collective accuracy on the betting exchange. Therefore, the crowd or rather the bettors will create odds based on different opinions that are actually pretty accurate.
Is the use of “Wisdom in crowds” theory in betting effective? What do you think?