Fav-LS bias at books v BFEX and targeting higher-vig markets

Given FLB is a result of book overround and bettor psychology, does it stand to reason that it should also be observed (albeit to a lesser degree) on the exchange despite a greater % of money being sharp?

In addition to this, have recently read from a well informed former odds compiler that the common notion of higher vig high-field markets being harder to beat can actually be incorrect due to the fact that higher vig high-field markets typically indicates higher price uncertainty, in which case a little knowledge can go a long way to ID value

Not sure if you’ve seen this, but I wrote a blog post a while back about the fav-longshot bias. It’s a bit involved and maybe not worth your time, but what I’ve written below is coming from that post for the most part.

Re your first point about exchanges versus books: one key thing that seems overlooked is what the definition of the FLB is in an exchange versus a bookmaker market. With bookmaker markets, people typically define the FLB as “declining returns as odds lengthen” (e.g. betting on longshots returns -10% while betting on favourites returns -4%). However, with exchanges, often the FLB is defined using the midpoint of the bid-ask spread. Somehow, in my reading of things, this has gone unnoticed by most people. If the midpoint of the bid-ask is unbiased (which it typically is on an exchange, at least in the more efficient markets), this means that expected returns decline as odds lengthen (which is the definition of a fav-longshot bias in a bookmaker context).

Anyways, my point here is that I would expect to see the FLB in exchanges simply because I think FLB is basically inevitable in any market there is an over-round. I don’t think a theory about bettor psychology is required to explain FLB (if we are using the declining returns definition).

Re your second point, yes I think that’s true, but I don’t think there even has to be higher price uncertainty. Here’s an example this week that I think illustrates why it’s the case:

Consider Valimaki and Dubuisson in the European Tour event. We have Valimaki’s skill at about -0.5 and Dubuisson’s at -1, so a half-shot difference. We have their cut probabilities at 61.3% and 50.5% respectively, and their win probabilities at 0.7% and 0.3%. Suppose there is a bettor who, for some reason, thinks that Dubuisson’s true skill is closer to Valimaki’s this week, while the bookmakers stick with the skill levels listed above to generate their prices. This bettor is going to have a much larger perceived edge betting on Dubuisson to win than betting on him to make the cut, even if the bookmaker puts more vig on the outright price. For example, suppose they price his cut probability at 54% and his win probability at 0.4% (generated based on the true prices of 50.5% and 0.3% listed above). This would give this bettor a perceived edge of 75% on the win bet, but an edge of just 13.5% on the cut bet, even though the vig is much higher (proportionally) on the win bet than the cut bet.

This example is specific to the relationship between underlying skill and finish probabilities in golf, but I think it holds more generally. Basically your disagreements with the bookmaker on a team or a player’s skill can translate into a way bigger edge in probability terms when those probabilities are very small. It doesn’t take that much of a disagreement to move from 0.1% to 0.2% – which is a difference of 100%! – while it’s not even possible to have movements that large once you get to probabilities above 50%.

I’m also realizing this is closely related to my thinking on the FLB. Basically, at low probabilities expected returns (both positive and negative) get magnified even when there are only minor differences between the true price and the price you are betting at. If you are on the positive side of this, it means big EV! But if you are on the negative side of it, it means you’ll lose a large % on each dollar bet (which is how the FLB comes about, IMO). So the result is that in low probability, high vig markets, if you are a sharp bettor you can achieve a high ROI, but if you are betting aimlessly you will lose a lot.

I guess I didn’t really address your questions, but I do think your point about higher-vig markets having more price uncertainty is also true – I just don’t really have anything useful to add on that front.


Thanks for such a detailed reply Matt.

Yeah have read your article on this several times actually (some of it over my head aha), along with Buchdahl’s/Brycki’s on Pinnacle etc.

I understand the concept when relating to bookmakers, just not sure I quite understand it still occurring on a ‘fully’ liquid exchange.

If a large basis behind the concept is bettor’s risk tolerance, i.e., deeming anything under, say, 2/1 be not worth the stake etc, could/should more competitive markets [where the favourite is in close(er) proximity to the backfield, i.e., Fav at >10/1, Longs at >300/1] actually be considered in a different scope? In these markets, all possible selections are likely to be deemed ‘risk-worthy’

I used to make markets at Tradesports, had a field day shorting longshots

Your bankroll grows very quickly when you never lose

Golf, college football, college basketball, NASCAR, Tennis, Formula One. Tried to hunt for as many longshots as possible with quick settlements

In general what happened was that I eliminated all the downswings. Yes it’s the underdogs that bring in the big money but shorting the longshots prevents your bankroll from going down in between all the big hits

Still miss that site. Tradesports went bust before I could really make hay. Hopefully Sporttrade or some other site goes mainstream for US players

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Interesting Daniel thanks

You were dealing with largely square money then I assume if profiting substantially off a scattergun laying-long strategy?

Not too familiar with trading/shorting etc, is this essentially equivalent to laying?

Basically the big volume market makers are professional bookmakers who give terrible odds on the longshots

So I undercut them whenever the opportunity arose

Yes there are occasional losses laying -5000 but if you’re winning 200 in a row in between the losses the fear disappears

I think both square and sharp money misprices huge longshots in my experience.

If it was effectively laying and his bankroll “grew very quickly”, he’d have to have a six if not seven figure bankroll in that sketchy Tradesports site which went bust. Back 1.02 shots on Betfair, see how long it takes to go bankrupt.

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Well I started with $100
I did the best I could with the time I had
Oh well, it was fun while the party lasted