Rationality and Risk Intelligence in Binary Betting

17 Pages Posted: 2 Jul 2013

See all articles by Raph Di Guisto

Raph Di Guisto

Cayetano Gaming

Aaron Brown

New York University (NYU) - Courant Institute of Mathematical Sciences; AQR Capital Management, LLC

Nick Maughan

Cayetano Gaming

Date Written: May 21, 2013

Abstract

We analyze 1.6 million binary bets on financial markets totaling $600 million in stakes, placed by 21,000 bettors at a large Internet betting site. The data set is unusually large and complete, plus has one additional important advantage: we can obtain objective independent estimates of the ex ante probability of winning each bet, using data from financial markets. This allows us to distinguish bettor profit due to superior prediction of financial events from bettor profit due to exploiting ex ante favorable odds situations. We focus on the degree or type of skill possessed by bettors (if any), and the amount of rationality and risk intelligence demonstrated in exploiting that skill.

Keywords: Betting, Financial betting, risk intelligence, bet sizing, betting rationality, binary bets

JEL Classification: D84

Suggested Citation

Di Guisto, Raph and Brown, Aaron and Maughan, Nick, Rationality and Risk Intelligence in Binary Betting (May 21, 2013). Available at SSRN: https://ssrn.com/abstract=2288747 or http://dx.doi.org/10.2139/ssrn.2288747

Raph Di Guisto

Cayetano Gaming ( email )

109 Todor Alexandrov Blvd, 5th & 6th Floor
Sofia
Bulgaria

Aaron Brown (Contact Author)

New York University (NYU) - Courant Institute of Mathematical Sciences ( email )

New York University
New York, NY 10012
United States

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Nick Maughan

Cayetano Gaming ( email )

109 Todor Alexandrov Blvd, 5th & 6th Floor
Sofia
Bulgaria

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