Information Cascade in Sports Betting
Las Vegas Nevada, one of “The Entertainment Capitals of the World,” has the reputation of being a gambler’s paradise. There are dozens of casinos where you can test your luck in activities such as poker, roulette, and sports betting. Sports betting is a type of information cascade in a multitude of ways. Firstly, many gamblers will look to each other for information, searching for the right bet to make. Also, there are many websites and analysts that provide the average gambler with information concerning their bets and chances of winning. Many times, people follow this information, and the more people that gravitate towards a certain bet, the better the chance others will do the same. On the website provided below, one can find many important statistics on team that they want to bet on. Covers.com also provides its users with up to date odds and current information that could affect those odds.
http://www.covers.com/index.aspx
A more specific example of information cascade would be if someone walks into the casino and sees that they can bet on an NBA game where the Lakers (known as a good team) are playing the Clippers (a notoriously bad team). If this person knows very little about basketball, he or she may want to receive information from others who know more about the NBA than he or she does. As a result, the person could ask friends or other gamblers about how they think he or she should bet. The better could also go on a website such as the one provided and look up statistics that could lead to a successful bid. In turn, if many other gamblers see that he and the majority of the people placing bets are betting on the Lakers, than they may do the same because it appears to be a good strategy (one where they can make money). This is one part of decision making networks and information cascade where people turn to others more knowledgeable then them.
However, sports betting is not as simple as this. The majority of the time you can’t just place money on a team to win a game. Such bets are not usually offered. Rather, Oddsmakers carefully calculate the probabilities of different types of outcomes in spread betting and over under betting (in sports like basketball). Spread betting is when a gambler bids on the difference between the scores of two teams being less than or greater than a number given by the Oddsmaker. Over under betting is when the gambler bids on the total number of points in the game being over or under a certain number provided by the Oddsmaker. The Oddsmakers look at statistics and how many people are betting and then determine what the spreads and over unders are.
Much like the marbles in a bin problem that we went over in class, where probabilities were calculated suggesting that the bin was majority red or blue, probabilities of bets can be figured out by gamblers. In this example, there were many different probabilities that could be calculated such as the probability that the bin was majority blue given that the first marble selected was blue. In sports betting, different probabilities can be calculated just as in the marble example. If the Lakers were playing the Clippers and Kobe Bryant was hurt, the probability that the Lakers beat the Clippers given that injury would effect the odds (spreads and over under) on a site such as covers.com. This may cause many people to change the way they are betting and ultimately cause an information cascade. This is because if one intelligent sports better truly believed that Kobe Bryant being hurt would drastically affect the result of the game, he may bet differently than he would if Kobe Bryant were healthy. This could cause many other gamblers to follow this person’s gambling path.