I watched the interview of Professor Augustin Rayo on Prediction & Philosophy, as I thought it might provide some insights into my final project, which is about horse racing. The interview tackles the predictability of human behavior, which is essential to understanding the pari-mutuel betting system that is used to bet and make predictions on horse racing. In this betting market structure, people bet against each-other, rather than the casino, and the odds and corresponding payouts are determined after all the total money bet is pooled together, with those who win their bets getting their proportional share of the pot. Thus, it is essential for the public to understand and be able to predict the behavior of the others they are betting against, as it can inform them of biases others have that may lead to market inefficiencies and potential for profit and winnings.
Professor Augustin Rayo describes how our ability to live as a society is based on the fact that we are very predictable and have common behavioral patterns. We are predictable because our society has certain systems and rules that we agree to abide to, and thus we all engage in communal practices that force us to behave in a synchronized, common, predictable way. However, our ability to predict our own behavior is sometimes less obvious, as we are usually unaware of our own biases and typical habits/behaviors. This can be applied to predicting peoples bets in horse racing, as bettors make certain irrational decisions, such as preferring long shots rather than favorites and displaying risk-loving behavior. Certain “sharp” bettors are able to take advantage of this by correctly predicting the behavior of others, and waiting until the last possible minute to make a bet when the odds are clear and there is the least amount of uncertainty about what their payouts will be.
For further information on why bettors make irrational/biased decisions in horse racing in the face of uncertainty:
Thaler, Richard H., and William T. Ziemba. “Anomalies: Parimutuel Betting Markets: Racetracks and Lotteries.” Journal of Economic Perspectives, vol. 2, no. 2, May 1988, pp. 161–74, https://doi.org/10.1257/jep.2.2.161. Accessed 8 Apr. 2024.