In summary, “-momentum”- can exist, but the places where you’-ll see it is in races where current public opinion is out of step with best predictions. The mere information that a race has a 5-point swing is not enough to predict a future shift in that direction. As Nate emphasizes, such a prediction is only appropriate in the context of real-world information, hypotheses of “-factors above and beyond the direction in which the polls have moved in the past.”-
From Andrew Gelman:
In a letter published in the latest New Yorker, Douglas Robertson writes,
James Surowiecki, in his column on sports betting, writes, “-How much difference is there, after all, between betting on the future price of wheat . . . and betting on the performance of a baseball team?”- (The Financial Page, September 25th). Future markets in products such as wheat allow famers and other producers to shield themselves from some financial risks, and thereby encourage the production of necessities. In this sense, the futures markets are more akin to homeowners’- insurance or liability insurance than to gambling on sports. But there is no corresponding economic benefit to betting on sports- on the contrary, there are serious costs involved in protecting the sports activities from fixing and other corruptions that invariably accompany such gambling activity.
This is a good point. I enjoy gambling in semi-skill-based settings (poker, sports betting, election pools, etc.), and betting markets are cool, but it is useful to step back a bit and consider the larger economic benefits or risks arising from such markets.
My Take: They are both misinformed. With an ethical real-money prediction exchange (a.k.a. betting exchange), this problem is easily solved. As I reported last month, BetFair has signed memorandums of understanding with TWENTY FOUR sports bodies. If the BetFair managers spot manipulation attempts, they will report the villains’-s mischiefs to the sports bodies and, possibly, to the Police, too. How do you like that, Andrew Gelman?
Addendum (October 30): Andrew Gelman published a blog post on Midas Oracle, in response.