India v Sri Lanka Win Betting - 02/04/11
- Sri Lanka v India - 02/03/11
India are 4/6 to win, Sri Lanka are 6/5 to win with Boylesports
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If converted to probability this means that probability of India winning is 0.4 and that for Sri Lanka winning is 0.545. It is interesting to observe that these two probabilities do not add up to 1.
Suppose now the betting house sells one bet of $100 for India winning to A and another bet of $100 on Sri Lanka winning to B.
Then in case India wins the betting house returns $100 (to A) and pays out $150 additional (to A). It keeps $100 of B. So the net loss for the house is $50.
In case SriLanka wins the betting house returns $100 (to B) and pays out $83.33 (to B). It keeps $100 of A. So the net gain for the house is $16.77
How is the betting house going to make money then? The answer possibly is that it expects lot more gamblers to bet on Sri Lanka winning than on India winning. This can be explained from prospect theory. Since, the chance of Sri Lanka winning is more than that of India winning, for a gambler the chance of losing $100 is more when betting for India than for Sri Lanka. This will drive a larger number of gamblers to bet for Sri Lanka. The fact that they (gamblers) stand to gain about 80% more if they win by betting for India than for Sri Lanka is likely to be overridden by the fact that the chance of losing of $100 is 32% more when betting for India than for Sri Lanka.
An interesting illustration of Prospect Theory is practice !!!
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