Friday, February 25, 2011

The Meaning of Odds

According to @CJFDillow (via @diane1859) "Paddy Power say there is twice as much chance of alien life being discovered this year as of Arsenal winning the quadruple: 40/1 vs 80/1"

Chris's interpretation of the odds offered by bookmakers such as Paddy Power is that they reflect the subjective probability of certain events - either as determined by the bookmakers themselves or as determined by "the wisdom of crowds".

But I prefer to think that these odds merely reflect a lower elasticity of demand on silly wagers, indicating the irrationality of those who bet on such events. Perhaps Paddy Power reckons that the number of people betting on aliens is likely to be largely unaffected by the odds (economists call this an inelasticity of demand), in which case there is no incentive for the bookmakers to offer more favourable odds, or even to devote much effort to calculating more accurate odds.

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