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MSU professor finds logic in illogical world of football wagering
February 04, 2005 -- by Carol Schmidt, MSU News Service
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| MSU finance professor Greg Durham said there are parallels in legal point-spread wagering centered in Las Vegas and the stock market. MSU photo by Erin Raley. |
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Bozeman - No matter the status of Terrell Owens' leg or the accuracy of Tom Brady's arm, it's a safe bet that Montana State University finance professor Greg Durham can predict the likelihood of a bet winning on Sunday's Super Bowl.
"There is statistically a 50-50 chance of winning any point-spread sports bet, just as you have with making an unfair return on an investment," says Durham, a professor of finance at the Montana State University's College of Business.
Durham has an insider's knowledge of what he speaks. He has studied eight years of patterns of legal sports wagering behavior for an article that Durham co-authored on behavioral biases among football bettors. The article, co-written with Michael G. Hertzel and J. Spencer Martin, professors at the W.P. Carey School of Business at Arizona State University, will be published in an upcoming edition of the prestigious Journal of Finance. Durham said financial analysts and researchers often study gaming, which has patterns similar to stock market investing.
Durham says that although sports wagering depends on unpredictable sporting events, bettors often adhere to consistent and predictable behavioral patterns. It is those patterns that first attracted Durham when he was looking for a research subject for his doctoral dissertation in finance at ASU.
Durham said among the parallels between legal sports wagering and the Stock Market is that both depend on a market maker. On Wall Street, the market maker uses a stock's price to balance the buyers and sellers of stock. In Las Vegas, the sports book uses a point spread, or the margin of points predicted between winning and losing teams, to maintain the balance of bets for two teams. Both markets have so-called "experts" who sell expertise and predictions about the eventual outcome.
While many gamblers associate luck or magic with gaming success, Durham said research indicates that gamblers who play in the legalized gaming industry behave in predictable patterns. He said researchers who study stock price patterns believe the patterns can be applied to sports gaming and vice versa.
"Any finding that arises from studying sports wagering markets might also have meaningful implications for stock markets," he said.
Durham's research compared how gamblers and stock investors looked at past patterns in performance to predict future performance.
"Prior research seemed to indicate that investors expect stock-price performance trends to continue," Durham said. "Investors incorrectly believe that a trend of upward price movements is representative of the overall pattern, when in actuality the stock-price process is fairly random. These beliefs become stronger as the trend becomes longer."
Durham and his colleagues found sports bettors' behavior differed -- gamblers are more likely to believe that a long-term streak will be reversed. Durham's study found that sports bettors "come to expect a reversal in performance as streak length grows." Durham said that his research indicates that the probability of winning any point-spread wager remains 50-50, or completely random.
Durham said that familiarity bias, another type of behavioral bias, is particularly strong among gamblers, who will rely on familiar things or experiences. For instance, in sports wagering, people will bet on teams that they think they know about.
While the subject of his research and his recent paper is intriguing, teaching finance is the real reason he became a professor, Durham said. The son of Dr. Leo and Betty Durham of Bozeman, Durham graduated from MSU with a degree in electrical engineering and began his career in education as a professor at Arizona State.
"But I said if the opportunity ever came to come back to MSU, it would be my dream job," Durham said of his return home.
Durham said his research into years of gambling outcomes has proven there are no short cuts.
"No trading (or wagering) strategy can yield abnormal profits," Durham said of the markets. "At least that's what I've found. Though, some of my non-academic buddies like to disagree."
While gamblers often spend a great deal of money and effort scouting information about a team that will give them an advantage, Durham believes the best predictor, on the average, is the point spread.
"Point spreads are uncanny predictors of actual outcomes of games," Durham says. "It's amazing how close they usually are to predicting the eventual outcome of the game."
Contact: Greg Durham (406) 994-6201
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| [View or Download] | 1. | MSU finance professor Greg Durham said there are parallels in legal point-spread wagering centered in Las Vegas and the stock market. MSU photo by Erin Raley. |
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