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 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”.
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?
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.
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