Are Actuaries Better Sports Bettors?
Fundamental similarities between an actuary and a sports bettor
In both sports betting as well as the financial industry, you’re required to decide on a certain set of assumptions, based on which you create your model. These assumptions are what make or break any such model. Hence, plenty of care must be taken with regard to selecting, testing and updating them.
Expert categories existing in both these industries also have plenty of similarities. You’ll come across individuals solely focused on the models’ intricacies for development of sophisticated models, which deliver an edge, while others may focus solely on price movements. Other professionals may instead be focused on the data quality.
Both fields are about risk measurement and value location, however, how they are fundamentally different?
At core, a bet is basically a binary option and is therefore a type of derivative. In addition, sports betting and insurance are essentially the same, barring the feature of insurable interest.
A person must basically have some insurable interest whenever he/she purchases insurance, implying that he/she should stand to lose something in case a certain outcome occurs. Its opposite in case of a sports bet – a team or a player can’t buy a bet on the possibility of his team or himself losing the match. And while a bet is placed with the intention of winning some amount, insurance is bought for putting yourself in the same position if a certain event were to occur.
It means that if you buy a contract which pays you a certain sum of money if Queen Elizabeth dies, you’d essentially be betting. But if Prince Philip were to do the same, he’d be buying insurance!
It results in less scope for any asymmetric information in the field of betting and sports. Whenever you buy life insurance you may not inform the insurer that you have a certain health condition, unless specifically asked.
On the other hand, the insurance company may have some sophisticated procedures that provide them with a fair estimate of the severity and likelihood of outcomes. It actually results in one party being more and/or better informed. This difference is comparatively much lesser when it comes to sports betting markets.
Three important items in finance-related predictions are timing, severity (size) and probability. For instance, if you purchase insurance against some natural calamity, the size of damage caused may range anywhere from a few hundred to several billions of pounds.
One may also be interested in predicting the timing of these events, in order to invest in a manner so he can liquidate his investments accordingly. There’s some amount of uncertainty over the development of claims post the occurrence of an event, spread over several years. Yet, in the field of sports betting, we show far less keenness in the aspects of timing and severity, as majority of these bets are short-term in nature.
Does an actuary have a very good chance of succeeding at sports betting?
As actuaries are basically experts in risk assessment, and receive training in asking the right kind of questions for building models, it gives them an edge over conventional sports bettors or model creators who focus strictly on the mathematics aspect.
In addition, actuaries can often be seen interpreting results from various sources and then presenting them to lay audiences. This ability of theirs, may prove highly useful when they try to figure out the biases among the sports betting population. They can then exploit these biases to their advantage!