- What is asymmetric information?
- Asymmetric information in practice
- How to obtain an information advantage
Information holds immense value for both bookies and wagerers. In scenarios where market data is scarce or liquidity is low, bookmakers may not have ample information. This scenario presents a golden opportunity for bettors who hold superior information. Continue reading to discover how you can profit from asymmetric information.
What is asymmetric information?
Asymmetric information is an economic principle where one or more parties in a transaction possess relevant information that others do not have. Utilizing this information disparity through signaling can convey the information to the uninformed party, thereby correcting the inefficiency.
In the realm of sports betting, asymmetry arises when a bettor has access to information not available to others in the market. This could include insights from statistical analyses or early reports on injuries or player withdrawals. Signaling in the context of sports betting means the market adjusts based on the bets of those with pertinent information.
Using asymmetric information: Hopkins and Hamilton
Richard Hopkins noticed a young go-kart racer outperforming his son with apparent ease. Recognizing the young driver’s exceptional talent, he placed a €200 bet on him to win a Grand Prix before age 23 at 200 to 1 odds, a €100 bet on him winning the World Championship by 25 at 500 to 1, and an additional €50 on both outcomes at 1500 to 1. This promising young driver was Lewis Hamilton.
Hopkins’s unique knowledge in kart racing gave him an edge over the bookmaker, translating into a €165,000 windfall when Hamilton achieved the anticipated success.
While not every bettor will find their Lewis Hamilton, the principle holds across markets where information is scarce. Quality information is a treasure, and having superior information compared to the market often leads to profitability.
Finding a market
Gaining an information advantage in major events, such as Premier League matches, is challenging since any new information rapidly influences market prices. Thus, choosing an appropriate event is crucial for bettors aiming for long-term profits from information.
Many successful bettors focus on niche leagues or sports where markets are slower to react to new or superior information. Becoming an expert in a lesser-known soccer league, for instance, might allow you to identify key player absences before they impact the odds.
Unique events also present opportunities to utilize specialized information. Both bookmakers and bettors may find it hard to adjust to novel occurrences due to a lack of comprehensive data.
Using an information advantage: New teams and The MLS
In soccer, novel occurrences are infrequent. Teams often face off multiple times within a season, and data on player performance and results are widely available for analysis. Nevertheless, informational advantages can still offer betting opportunities.
An example is the MLS, which occasionally features the introduction of a new team. Without prior performance data to evaluate the team's quality, these newcomers are typically seen as underdogs.
For the 2016/17 season, Atlanta United joined the MLS and were pegged at 126.00 to win the MLS Cup, placing them at the bottom with Minnesota United, another new entrant. These odds reflected the historically poor performance of debutant teams rather than the specific circumstances of Atlanta’s entry.
However, knowledgeable MLS followers understood that Atlanta posed a significantly greater challenge to the established order than Minnesota did. Unlike the typical newcomer built from rushed signings and lower-division players, Atlanta compiled one of the league's most valuable squads and appointed former Barcelona coach Gerardo “Tata” Martino. Despite only meeting fan expectations, their odds dropped to 16.00 within weeks, and by the playoff time, Atlanta was among the top five favorites at 10.00, while Minnesota had been eliminated early on.
Acquiring relevant information
The internet has vastly increased the accessibility of valuable information to bettors. Gaining a profitable edge might be as straightforward as following fan blogs from lesser-known leagues, staying updated on news from obscure sports before major events, or leveraging statistics not yet accounted for in market prices.
Sports that sporadically offer odds can present opportunities, as initial lines might be set far from the true value, especially before major events in niche sports like the Winter Olympics.
Staying informed about the latest developments, such as the health status of Switzerland’s mixed doubles curling team or the Nigerian bobsleigh team's practice performances, can offer bettors an advantage not yet reflected in the opening odds. With NHL players not participating in the 2018 games, even a market as liquid as ice hockey faced higher than usual levels of uncertainty.
Asymmetric information and the favorite–longshot bias
Law and Peel’s study, "Insider trading, herding behavior, and market plungers in the British horse-race betting market" (2002), demonstrated that the costs associated with insider information are offset by higher “bid-ask spreads” (bookmaker margins in sports betting).
This results in the increased costs of managing bets from those with asymmetric information being passed on to the broader betting market through elevated bookmaker margins. This effect often impacts more casual bettors who tend to overbet on longshots and underbet on favorites, contributing to the favorite-longshot bias observed in sports betting.
Measuring success: Beating the closing line
The effectiveness of using information is evidenced by a bettor’s ability to consistently beat the closing line, thereby ensuring long-term profitability. The signaling of asymmetric information by such bettors will adjust the line towards its fair value, effectively showcasing the significance of their superior information. This also opens up arbitrage betting opportunities, which, if properly exploited, can minimize the variance of a strategy based on information.
However, assessing the value of your information in markets with low liquidity is more complex. A limited number of bettors prevent the odds from moving towards the true value, and odds can become skewed by individuals acting on irrelevant or incorrect information.
Limitations: Choosing the right bookmaker
Many bookmakers impose low limits on markets with scarce information or may restrict or ban customers who profit in niche markets. It’s vital to select a bookmaker that doesn't penalize successful bettors.
At 7x7Bets, we value bettors who win and leverage the insights provided by their informational advantage to refine our odds. If you’re aiming to profit from asymmetric information, ensure you choose a bookmaker that appreciates and rewards your insightful information over the long term.
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