Why the BetFair model is partially obsolete

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I like BetFair and the BetFair people very much. I was the only blogger to talk up the BetFair starting price system and the BetFair brand-new bet-matching logic. But the other face of the coin is that 2 aspects of their model are rotten to the core.

BetFair was created in 1999 and started off in 2000. Since that time, 2 major things arrived on the world scene. Number one, we have seen the emergence of the prediction market approach. Number two, the Web has taken our lives, and Google has become the dominant Internet search engine. Here are how these 2 major trends are affecting BetFair negatively.

  1. Decimal Odds (a.k.a. Digital Odds). – The prediction market approach means that we attack the public with the news and their associated probabilistic predictions, expressed in percentages, where high prices mean high probabilities of happening. BetFair, at the contrary, approach the public with a betting universe and an arcane vocabulary (&#8221-backing&#8221- and &#8220-laying&#8221-) where low prices mean high probabilities of happening. That is totally counter intuitive.
  2. Non-Indexable Prediction Market Webpages. – Like it or not, Google is now the world&#8217-s #1 media. We &#8220-google&#8221- anything, first thing in the morning. None of the BetFair prediction market webpages can be indexed by Google and the other Internet search engines. That means that BetFair is missing out, in my estimation, on hundreds of thousands of Google visitors each year. Those Google visitors will favor other prediction exchanges (e.g., HubDub) whose prediction market webpages are indexed naturally by the Internet search engines.

The British, who drive on the wrong side of the road, don&#8217-t have the 2 most important keys of the future.

BetFair Digital Odds = BetFair Probabilities

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Odds that Hillary Clinton gets the 2008 Democratic nomination = 1.56 (digital odds taken at 9:15 AM EST)

To get the implied probability expressed in percentage:

  • Take the number &#8220-1&#8243–
  • Divided it by the digital odds (here &#8220-1.56&#8243-)-
  • Then multiply the result by 100-
  • 64.1% = ( 1 / 1.56 ) x 100

BetFair-generated implied probability is not far away from InTrade&#8217-s 62.1%.

Monty Python and the Holy Grail

Psstt&#8230- This present post was prompted by Niall O&#8217-Connor, who puts all his faith in the BetFair instant &#8220-over-round&#8221- &#8212-which indeed doesn&#8217-t add up to the virgin and perfect &#8220-100%&#8221- that Niall is seeking (like the Monthy Python were seeking the Holy Grail). Good luck for your quest, Niall.


The French Taunter:

Your mother was a hamster and your father smelt of elderberries!


External Resource: Interpreting Prediction Market Prices as Probabilities – (PDF file) – by Justin Wolfers and Eric Zitzewitz


NEXT: Implied Probability of an Outcome &#8211-BetFair Edition


0-100 prices… explained to the British traders.

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Why Binary Prices?

There are several advantages of using binary prices instead of decimal odds:

1. Binary prices are more intuitive than decimal odds.
Ask a person on the street what they think the chances are of a certain event happening: they aren’t likely to say “I think it is around a 1.4 shot” or “I reckon it’s around 2/5 on”- most people would say “I think it has around a 70% chance of happening”. With binary prices, you are trading the percentage chance of the event occurring.

2. Trading is easier with binary prices than decimal odds.
When trading with decimal odds, in order to achieve an equal profit or loss regardless of the outcome of the market, the stake size needs to be continually recalculated as the odds vary. With binary prices, trading in and out of markets is easy – to achieve an equal profit or loss across all outcomes, all you have to do is get your net position on the market to zero. This can be done in BinarySoft BDI by simply setting your stake to the current net position and then placing an order accordingly. By monitoring your net position you can trade in and out of markets faster and more easily than with decimal odds.

3. The stake size does not need to be continually adjusted.
Compare a bet of ?100 at decimal odds of 1.01 vs. a bet of ?100 at decimal 100.0 – a huge difference in the amount of money being risked. With decimal odds you have to continually adjust your stake as the odds vary in order to risk the same amount. The equivalent of these two bets in binary prices is ?1 per point at a price of 99.0 and ?100 per point at a price of 1.0.

4. Binary prices enable both selections of a binary market to be combined into a single concise view of the market.
When viewing a binary (two-selection) market in BinarySoft BDI, all of the bets across both selections are combined into a single ladder-style interface. It also means that you can place a bet on the outcome of the binary market without having to worry about which underlying selection you should choose in order to place your bet. This combination of both selections into one concise view of the market is only possible when using binary prices.