Anyone here read Fooled By Randomness?

[Dana666]

I finding this book rather interesting and applicable to those who wager. I was wondering if anyone else here has read it and if you had anything thoughts on it?
Seems like it might be right up Jerry\'s alley.

http://www.amazon.com/Fooled-Randomness-Hidden-Chance-Markets/dp/1587990717

[SoCalMan2]

It is a great book, I loved it, but it is not for everybody.  

With respect to applying to wagering, it is important to consider what exactly the wager is.  Craps is pure randomness -- you can mathematical determine probabilities and the wagering prices are fixed. He uses examples from craps in the book.  In horseracing, while there is definitely uncertainty as to outcomes, there is an ability for a person with superior information or superior analytical skills to determine a good approximation of the probability of various outcomes....then the issue is that the wagering prices are set through pari-mutuel.  In theory, a person like TGJB can construct a situation where you could reasonably bet any horse in a given race to win (they all have some chance no matter how small) and that the odds presented by the crowd determine which horse is the right one to bet today (not because its probability of winning is any different (chances could be very low) but because the reward for being right is too good to turn down even if the likelihood of winning is low).  This is basically what Taleb\'s point is.  Most people on wall street just gamble and winners think they are geniuses BECAUSE they won whereas that is a idiotic measure. They can just as easily \"lose\" the next day and whether they cashed or not is NOT a reflection of genius.  Somebody always is going to \"win,\" but Taleb\'s point is that \"winning\" is really something more....it is getting the better price (getting the better of it) regardless of the outcome.  Taleb\'s own investing principle is that in general the market place way underestimates the likelihood of catastrophic-type events.  He buys options that are way out of the money for pennies.  He loses probably 98% of the time.  However, he only needs to be right one or two times out of a hundred to make a huge profit.  The idea is he is pricing better than the crowd.

Anyway, that is my general \"read\" of the book and its potential applicability here.  While I loved the book, it takes a certain amount of intellectual fortitude to get through.  Some people cannot stomach it.

[TGJB]

Quick comment-- yes, price versus actual probability is key to beating the game, but it\'s not the only key.

The big computer programs use something called Kelly Criteria-- it\'s percentage of overlay times percentage chance of winning. In other words, if a horse that\'s 3-1 is the same percentage of overlay as a horse that\'s 20-1, it will bet a lot more on the 3-1 shot.

This is the same principle I used to discuss with a guy who used to give seminars for us, a guy that bet only longshots. If you have a choice between getting 6-1 on pulling a heart out of the deck or 102-1 on pulling the queen of hearts, you are better off making the first bet (hopefully more than once). There is much more randomness involved in the second one.

Of course, as someone posted here once. \"all you have to do is figure out the right odds for every horse\".

[Michael D.]

Nassim Taleb wrote: \"I try to benefit from rare events, events that do not tend to repeat themselves frequently, but, accordingly, present a large payoff when they occur. I try to make money infrequently, as infrequently as possible, simply because I believe that rare events are not fairly valued, and that the rarer the event, the more undervalued it will be in price\"

What we might take from Taleb is that we should be trying to outperform the board as opposed to trying to cash each race.

Not sure the idea of looking for the rare event applies to horse racing though. There are probably more people playing for the rare event in horse racing than on Wall St, simply because betting on horses is more a form of entertainment. Many gamblers love 30-1 and hate 8-5. I\'m guilty at times. When I play the futures pools, I rarely take the field.

Is there really value on the horse racing rare event? Not sure.

[Boscar Obarra]

I figured this out a long time ago.

  Another way of looking at it is this. The utility value of a short odds overlay is much greater, as you can bet more and generate much more \'churn\' on your capital. You will double your bankroll with less risk of ruin much faster on overlaid favorites than on overlaid 20-1 shots.

 A lot less agita as well.

TGJB Wrote:
-------------------------------------------------------
> Quick comment-- yes, price versus actual
> probability is key to beating the game, but it\'s
> not the only key.
>
> The big computer programs use something called
> Kelly Criteria-- it\'s percentage of overlay times
> percentage chance of winning. In other words, if a
> horse that\'s 3-1 is the same percentage of overlay
> as a horse that\'s 20-1, it will bet a lot more on
> the 3-1 shot.
>
> This is the same principle I used to discuss with
> a guy who used to give seminars for us, a guy that
> bet only longshots. If you have a choice between
> getting 6-1 on pulling a heart out of the deck or
> 102-1 on pulling the queen of hearts, you are
> better off making the first bet (hopefully more
> than once). There is much more randomness involved
> in the second one.
>
> Of course, as someone posted here once. \"all you
> have to do is figure out the right odds for every
> horse\".

[JimP]

Taleb\'s other book on this subject, The Black Swan, is also very good.

[Dana666]

Yeah, that\'s next up!

[analizethis]

I have read the Black Swan bur not this one. Anyone think that we should be reading them both?

[alm]

Except that this is not a business in which everyone has equal access to all information.

Not only do well informed sheet readers know more than the average fan, but a horse\'s connections know more than everyone else about their animal, including sheet readers.

That being the case, the better mutual anomalies to check out are those in which any entry is bet more heavily than its apparent chances of winning may seem to be.  That\'s not to say all underlays are good to bet...but they deserve more attention than other potential bets.

[TGJB]

Alm-- having worked with a lot of trainers over the years, including lots of top ones, I can tell you that they may know certain things (relevant and not) that serious handicappers don\'t, but overall they don\'t know more that\'s relevant about the horses, unless they too are getting our data. And they have no way of evaluating the OTHER horses in a race.

If this were not true, given the way the game is stacked against owners, it wouild be impossible for me to have had the success I have had advising clients.

We\'re in the information age, however, and now a lot of those trainers are getting data that helps them evaluate their own horses and others. The good news is that some of that data, which is being sold to horsemen astoundingly cheaply, is seriously flawed. Sometimes (when it lines up with reality) it makes it harder to buy/bet horses, but other times it works in our favor.

[alm]

Right and I can say \'right\' from experience...in regard to the subject as you discuss it here.  I\'ve had trainers tell me they got the Rags numbers or the Beyers and \'we\' look good....and I sigh, but at least they made some effort.  

However, I was also referring to other types of information, such as a horse\'s condition going into a race...or the type of instructions given to a rider in advance of a race...don\'t we both know that not every horse is trying in every race?  It\'s an important piece of information when view in retrospect.  You don\'t know they used a previous race as a prep unless fairly strong action shows up following a \'bad\' effort.

Over the years I\'ve gotten pretty good at spotting improving horses based on betting action...mind you, I\'m not saying I can find winners easily...but when you see unusual action on a small barn\'s entry after some bad efforts, you can pretty much tell that a good effort is coming.

None of this takes the place of what you and your colleagues provide...it\'s just another factor that needs interpretation prior to a bet...from my point of view.