Skill paradox in betting

When it comes to betting skill plays one of, if not the most crucial role. The goal is to make profits in the long run. However, the degree of randomness that goes along with sports betting plays its part. Being an experienced punter, you know that your betting success directly depends on the mixture of your skill and luck. While these two aspects make the difference, you still have to gain the edge over the market by having a better assessment of the situation.

So, what do we mean by having a better assessment? Every event is given the odds, which represent an outcome probability. 

Some of you might have already started saying we are wrong. Just hold on a second. In reality, betting odds, or the odds offered by a bookmaker are a little bit far from representing the actual outcome possibility. Instead, they are showing the market's opinion about it (leaving aside the betting margin). Bookmakers only post the opening odds and afterwards are just adjusting them according to the volume of money placed on a certain outcome. So basically, if you look at betting, it is a competition between punters' opinions about the outcome, where you have to have a better prediction than the market. If you find a way to make more accurate predictions, you will be destined to achieve long-term profits. If you sum all of this up, you will come to the point where betting is just about giving the accurate prediction, which is not that hard. The question that arises is going the following way. Why is it hard to stay consistent? To answer this, we have to talk about a so-called skill paradox.

Since betting is tightly connected with randomness, there are lots of opinions about being a successful punter just means having luck. To answer this question, we might need to step out of the topic for a second. 

People are commonly miscomprehending randomness. The events we think are totally random, usually, are far from it. Lots of activities that were considered completely odd have been busted by either science or raw statistics. Blackjack turned profitable, and lotteries became a sort of investment. The same tendency is seen in fields where luck was considered absent. The optimal solution is never known, and there is always a chance to turn things around.

Betting is all about making the right choice, but decision-making is biased by a rather one-sided take on luck. Whenever we win - it's a skill, whenever we lose - it's bad luck. 

To show you all a more practical example, we have to turn to baseball and MLB in particular. Athletes have improved a ton since the beginning of the league, but some stats stayed the same. We are lucky to have a case of Ted Williams, who averaged an impressive 0.406 battling rate. His record has never been achieved again, but experts say he would not be able to repeat it (given a chance) in today's environment. Why? Athletes became more professional overall, therefore, more skilled. It shows that players improved but the gap between them stayed more or less the same, as it was before.

Let's go back to luck. Keeping in mind that the difference in skill is lower nowadays, what is the role of luck? Michael Mauboussin, a finance professor from the Columbia Business School, described the relationship between luck and skill in his work, titled "The Success Equation". He stated that as the difference in skill goes down, the role of luck goes up when it comes to outcome assessment.

Just like baseball, betting works in a similar way. Over time tipsters became more educated, and therefore, deviation of predictions is getting narrowed. Such progress was fueled by the drive to beat a bookie because if one side is more "skilled" than the other, it opens up a possibility to top your opponent.  

The following is derived from the skill paradox: since bettors started utilizing more complicated ways of predicting the outcomes, their range of abilities shrunk, allowing a room for more luck-dependent results. Let's take a look at the last decade or so. The period of the biggest online sports betting growth. More and more people have started betting, which led to more of them trying to beat the market. As a result, it became harder to do. The overall skill level significantly went up making the competition tougher, in return, substantially decreasing a share of profitable bettors and winning chances.

To sum up, as the market becomes more efficient, it gets harder to be profitable, and the role of luck, therefore, becomes more critical. Just like every top-tier competitor needs just a bit of luck to gain the advantage over his/her opponent, professional tipsters need it to gain the edge over bookmakers and land their wagers (especially those with multiple selections).

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