Betting Explanations

How Wisdom of the Crowd Affects Betting

Wisdom of the Crowd in Betting

Are betting odds represent the implied chance of outcome. But are they influenced by outside factors such as the “wisdom of the crowd”?

If you’ve been following this blog for any amount of time, you’ll likely have a strong opinion on this question.

With sports commentators and other media folk constantly referencing odds as if they are the gold-standard of prediction, it’s easy to see why so many interpret odds as if they are a matter of fact.

The reality being; betting odds are influenced by a range of factors.

In this article, I’m going to explain how the wisdom of the crowd affects betting in all manners of ways as. It’s arguably one of the biggest factors in how betting odds work.

What is “Wisdom of the Crowd”?

The term “wisdom of the crowds” was popularised by James Surowiecki in his book… “The Wisdom of Crowds”. The book puts a relatively positive slant on the phrase, suggesting that:

“the many are smarter than the few”

The video below gives a great example of crowd wisdom. Worth watching at only 4-minutes.

In the experiment, a professor asked a number of his colleagues to guess the number of jelly beans in a jar. Some people guessed extremely low, others guessed extremely high. The professor then added all of the guesses together and divided it by the number of people who answered, creating an average. The number produced was incredibly close to the exact amount (4,510 for those interested)…

In betting, the many are often smarter than the few. For example, large sporting events often attract larger amounts of bettors entering the market. Quite often, this can result in the events odds painting a more accurate picture of the realistic possibilities, with less volatility.

However, the opposite can also be true. In any financial market including sports betting odds, the “wisdom” of the crowd can create unnecessary panic which results in huge price swings.

How Crowds Affect Market Momentum

You’ll often find that in large sporting events such as The Grand National and The World Cup, prices can be incredibly stable. This is largely because large bets from certain individuals are much less likely to influence the market as there is such a large amount of bets coming in anyway.

However, odds can still swing with incredible momentum if enough backers or layers are behind it. This is where the wisdom of the crowd becomes better known as “herd mentality”.

Crowd

Once supply and demand becomes uneven in a large market, odds will naturally sway in one direction. This then becomes a self-fulfilling prophecy as individuals with a crowd tend to follow the crowd. Fear of missing out kicks in… “The crowd must be right”. Odds will continue to fly away until eventually the balance is restored or in our case (sports), the horse race goes in-play and the market changes shape entirely.

Wisdom of the Crowd Within Bookmakers

You’d think that each bookmaker would hire multiple professionals to ensure their odds are as realistic as possible. They have millions of pounds at stake, so surely they would have figured this all out by themselves?

Wrong!

If you think sports traders and bettors are a crowd within themselves, bookies have a crowd of their own. The same psychological flaws exist in these groups too. If you spend some time monitoring odds of various bookmakers early on in the day when prices go live, you’ll notice that some of the bigger players (Bet365 etc), release their odds before others. A few minutes or hours later, all of the smaller bookmakers release their odds and surprise surprise… they are extremely similar to the bigger bookmakers.

You can probably guess what’s going on here… bookmakers follow the herd, their own herd. If you look hard enough, you can even find some of their odds compilers arguing with each other about this on Twitter!

Using the Wisdom of the Crowd to Your Advantage in Betting:

So what does all this mean for your betting journey? How can knowing any of this be of any use?

With anything in sports betting, there’s no magic bullet or piece of information that will skyrocket your profits. However, being aware of the “wisdom of the crowd” and “herd mentality” can help shape strategies and techniques within the market.

For example, you can safely assume that in the early hours of a Betfair Exchange market opening, odds will be volatile as the crowd has not yet formed. There are still too few participants to have any hint of crowd wisdom. You might use this newfound knowledge to avoid markets at this early stage if you’ve got any sense!

Your Experiences With Crowd Wisdom

Have you seen “wisdom of the crowd” in action within the markets? Comment below with your story and how you tackled it.

Recommended Next: 3 Horse Racing Trading Strategies for Betfair’s Exchange

7 thoughts on “How Wisdom of the Crowd Affects Betting

  1. Wow, your on a role Caan, great job in the process of explaining. You’re right, the self fulfilling prophecy, happened to me in the past. It’s when you take a step back, remove emotions and get a proper outlook it becomes clear! Thx again for the video and pictures, that made the most clarity for me at 1st!

    1. It’s not surprising when you deep think about it, all those cliches come up with self-fulfilling stuff like you are what you think about… definitely holds some truth.

  2. Very useful to be aware of this – I tend to use it more to take a contrarian view of the market but ,obviously , sometimes the crowd is wiser. Part of the skill of ‘feeling’ a market, I think.

    1. The thing about being a contrarian – you get a hard time, nobody supports you… but when it pays off, you’re catapulted far ahead. Wouldn’t deter it.

  3. I’d like to see some examples where odds are skewed by a ‘wisdom of the crowds’ effect, which to my mind is based on people making ‘guesstimates ‘ by people using nothing more the evidence of their senses. But bookies use much more than that: professional mathematicians and statisticians armed with arsenals of tools and tons of data. All we punters have to fight with is little more than bunches and emotionas. The bookies ‘ odds will also reflect market response — I suspect popular teams like Man Utd and Liverpool are probably more heavily backed than the maths might dictate — and this last factor is, I believe, the only chink in their armour that we can expkoit. In other words, we too can use hard statistics to exploit a herd mentality.

  4. Two things for me with this game and its these. 1) I have done well turning £500 into £750 in one day then into £900 but then for some reason, I get caught up in my great success and the odds go the wrong way on one fast and I just don’t get out. Disaster and I never seem to learn but 2) it has opened my eyes to horses that have a wonderful chance of winning because the ones I’m talking about seem to go in time after time. Think I’m going to start looking at it like I’ve paid for a tip. Trade out then back the bloody thing.

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