The Conversion of Money Lines Into Win Probabilities

Jason P. Berkowitz, Craig Depken and John M. Gandar

Journal of Sports Economics, 2018, vol. 19, issue 7, 990-1015

Abstract: We contribute to the literature on money line betting markets by investigating the relationships between the various methods used to derive subjective win probabilities from money lines. We show that, although the seven methods described appear to be unique, they actually share many common assumptions and that, surprisingly, they reduce to three distinct estimates of bookmaker commission and subjective win probabilities. We also show that among the three distinct estimates, one is biased when money lines suggest a very heavy favorite in a particular sporting event. Thus, it is important to consider the assumptions for each method when deciding which to use in a particular context. Two empirical examples demonstrate how a market inefficiency, such as a favorite-longshot bias, should influence the choice of methodology.

Keywords: betting markets; subjective probabilities; market efficiency (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:jospec:v:19:y:2018:i:7:p:990-1015

DOI: 10.1177/1527002517696957

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