How hot-hand fallacy works in football betting

We are not going to get too much into the basics of the hot-hand, as they were explained in the previous guide. Let's talk more about market efficiency.

It is tough to crack the betting code, especially when it comes to the top European football leagues. Such competitions like Spanish La Liga or English Premier League are precisely verified by the market and oddsmakers. There is just too much information out there about these fixtures, which allows the odds to reflect the actual probability (in some sense). Such a scenario creates a situation where bettors cannot really be profitable due to the environment rules.

The so-called efficient market hypothesis has fallen out during the last decade. Many experts leaned to an idea of people not being good enough at assessing things efficiently, especially in non-random, entirely rational markets (like betting). One of the main reasons for that is bettors and people, in general, are not really good at evaluating big and small probabilities. This trend could be seen in betting when people overestimate/underestimate the possibility of the underdog/favourite, wagering too much or too little money on a specific option. That raises the concern about this phenomenon being biased, by what is commonly called a favourite-longshot.

The false evaluation and misconception of probabilities is not the only thing that affects bettors. The market is also getting exposed to another systematic bias called the hot hand fallacy.

The false assumption is created in the moment of extended streaks and/or repetitive patterns. People tend to underestimate these, believing (wishful thinking) such streaks will only prolong but not come to an end.

The hot hand fallacy was mentioned for the first time back in 1985 when Amos Tversky, along with his colleagues, explained the people's attitude towards understanding the chance, on the example of basketball. They found out that most of the population, generally, think that every consecutive measurement will not be closer to the mean, as the regression to the mean theory states. However, the principle does not state that things MUST return to the average, instead, they only tend to do so (the law of large numbers). Downs are usually followed by ups and vice versa. People misunderstand the hot-hand replacing the concept of «what's hot is going to cool down» with «what's hot is going to stay hot».

Whenever the football team goes on the winning streak punters always notice it. This attention results in more money being placed on the «hot» side, decreasing its value. Such a scenario usually results in the winning streak to come to an end.

There are more things that influence winning streaks, as well. Sometimes bettors do not take those into consideration, overestimating the teams' chances of succeeding. This misconception is called the hot hand fallacy. Bettors look at the hyped-up candidates and forget about the role of luck in their streak. That creates biases that push punters to make the unweighted calls. Derived from the above an example, we can say that situations that involve a large share of chance (luck) are expected to be moving towards the mean value more often and at a higher pace.

General practice shows, that «hot» teams on the winning streak are more likely to lose than punters believe. As a result, the market gets wrongly verified, resulting in the odds representing the untrue value. The same trend applies to the «cold» teams. They are mainly getting ignored by the market, which results in higher prices. Many would look at this option as at the unattractive one. That is where experienced punters make the difference. Looking at this situation and understanding where it is coming from is very crucial. According to the hot-hand fallacy phenomenon, such «cold» teams are likely to start winning, offering bettors tons of value.

In order to find out the results of the hot-hand hypothesis, we, firstly, have to find the so-called «heat» and «cold» value. You would need to utilise one of the mathematical methods to find it. We are not going to get too much into the mathematical aspect of it. Still, the goal here would be to find the true value of the team (betting margin excluded).

Well, to find out if the hand-hand actually works, you need a decent set data to test it on. Our suggestion would be to use historical data from the top European football leagues like the Premier League, La Liga, Bundesliga, Seria A, etc. We can test how effective is our hypothesis by analysing the matches from those competitions.

If you would go over the proposed sample, you should get the total turnover of just barely over 100%, meaning you would break even in the long-run. Still, your profits would not be too significant. Now, you have to break down the «hot» and «cold» teams, to get a bit of a better picture. In such a case, the «hotter» teams will show a bit lower returns, somewhere in high 90's, in contrast, the «colder» teams would give a better than the total return result. That suggests that «cold» teams are highly biased by the hot-hand fallacy.

Experimenting with the «hotness» value can give you way more than what we have just outlined. You can conduct a more-precise test or narrow down your criteria. It is all up to you. However, the general trend will show a higher overall return on the «colder» teams.

Do not also forget that for the experiment purposes, we were using the true market value (margin excluded). In reality, such a scenario is highly unlikely to happen, as bookies do not really practice that. Another thing that might affect your actual results is the fact that bookmakers like to restrict winning customers quite often. Well, a more advanced development of the conducted test could lead you to making profits even with applied restrictions.

Quick tip: try paying more attention to «coldest» teams.

The hot-hand theory is a great way to make your betting more profitable. However, it does not guarantee you anything. Randomness plays a significant role in betting markets like football. That only creates an insufficiency due to bettors being biased but not the fallacy of a hot hand.

Punters see winning teams as more attractive and vice versa. Such behaviour opens the room for «underdog» punters who possibly can get more value betting against the market. Just to summarise all of the above, do not interpret the hot-hand as a guaranteed way to make profits, but rather as a way to understand the betting strategy and biases that affect it, in order to gain the edge.

Happy Betting!