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FROM AN EARLY AGE, I was amazed at the power of mathematics to model our world and solve real world problems. In engineering school, we studied a host of mathematical techniques that did just that. But I wish we’d spent more time on probability and statistics.
In 1989, I read a book that gave me a broader view of how probabilistic our world is and, at the same time, made me aware of how ill-prepared the general population is to understand these concepts. The book was Innumeracy by John Allen Paulos, a mathematics professor at Temple University. He later wrote several other books that expanded on these topics, including A Mathematician Plays the Stock Market—a must read for mathematically inclined investors.
Paulos shows that even the mathematically competent are susceptible to behavioral missteps. My favorite example is the widely held belief in the gambler’s fallacy—the notion that, say, a coin toss is more likely to be heads if you’ve previously had a series of tails.
What made me think of this recently was not an investment, but a basketball wager. On my local sports radio station, the hosts were discussing a bet on how many regular season games the Philadelphia 76ers would win. The wager in question was a “money line” bet, where you wager a fairly large sum to win a relatively small amount. The hosts thought it was a no-brainer and variously described the bet as “a sure thing,” “can’t miss,” a “lock” and “better than an FDIC guarantee.” In my view, the bet had a very good chance of paying off. But comparing it to a government guarantee went too far. Long shots sometimes win.
As you may have noticed, sports betting using mobile apps is expanding at a rapid clip. A recent story on MarketWatch reported that 14 states currently offer sports betting, with many more states considering it. It’s expected to be a $7 billion to $8 billion business by 2025.
This rapid growth is a result of a May 14, 2018, Supreme Court decision. I live in the northwest suburbs of Philadelphia. There are now six sportsbook establishments within a 30-minute drive, as well as seven sportsbooks available to me online. None of these existed 18 months ago. Professional sports leagues, which once considered gambling to be a grave threat, are now embracing this new revenue source.
It would seem that a solid grasp of probability and statistics would be essential for sports gamblers. But I doubt the general population has improved in this regard. My bigger concern: The growth of sports gambling, especially among younger generations, will further blur the difference between gambling and investing.
Technology allowed the rapid development of day-trading in stocks. Many consider this a form of gambling. Similarly, a growing trend in sports betting is “in play” bets—wagers on offer throughout a game. Odds change after almost every play or every possession. The gambler uses a mobile sports betting app to monitor the odds. A wager may only be available for 10 or 20 seconds.
I have no idea how the growth in sports betting will shake out and or how it’ll impact society. But many in the financial community already worry about our society’s inability to manage money sensibly. When you couple that with easy access to sports betting, what are the odds this will turn out well?
Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. His previous articles include Triple Play, Read the Fine Print and Return on Investment. Follow Rick on Twitter @RConnor609.
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