Betting on Horse Racing
https://www.bloomberg.com/news/features/2018-05-03/the-gambler-who-cracked-the-horse-racing-code
In class, we learned about betting markets using the example of betting on a two-horse race. The optimal strategy in this simplified model is betting your beliefs. The fraction of wealth bet on each horse is the bettor’s belief about the probability that horse wins. In a real horse-race, betting strategy is much more complicated, since racing uses a parimutuel system, where the odds are constantly updated in proportion to how the bettors wager. Since there are so many variables at play for each race run, to win money you need a strategy that does not just rely on gut feeling.
Bill Benter was able to crack the code of horse racing by developing his own algorithms for placing bets. Using information such as past performance, weather, and a horse’s last meal, he came up with his own odds for each horse. He was able to increase his winnings by using the public odds as a starting point and then refining those with his own algorithms. As his models got more precise and he started winning more money every year, he was able to make larger bets. During the decade Benter lived in Hong Kong, he made over a billion dollars on races. He even won a single bet worth $16 million, but never cashed it in. All of this money was made using a strategy that takes into account dozens of factors, with virtually none of them based on his own beliefs.
One has to be a systematic gambler to reach the levels Benter got to, but for the average gambler, there are ways to increase your chances of winning multiple bets from a day at the track. Instead of simply betting your beliefs, one can look at past performance data for each horse in a race and use the real-time odds to place more bets, such as across multiple races, or predicting finish order for a single race. Betting on horse racing may seem completely arbitrary at first, but Bill Benter was able to show that there is a way to introduce a system and make extremely profitable bets.