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The issue with outliers

The issue with outliers

The issue with outliers

Is seeking value in overlooked outliers a feasible betting technique? How could such an outlier be found? This article addresses the possibilities and challenges presented by looking for overlooked teams in the betting market.

The issue with outliers

Outliers in theory
A theme I have already written about is the importance of betting knowledge. Prices are the amount of knowledge available on the market, so how can a single bettor gain an edge?

The uncovery of overlooked outliers is an interesting idea for potential bettors, which makes sense in theory. Bookmakers have a broad variety of sports and activities they need to distribute thinly, versus a bettor who can concentrate on one.

The market is usually productive so an ambitious bettor tells himself that he only needs to find one chance while the bookmaker only needs to overlook one part of a fixture to supply one. 

How practical is this in a market which has proven to be highly efficient?

The case for outliers: Smart people miss stuff 

The universe has given us examples of very smart people doing apparently not very smart things. Most market participants still tend to miss something that seems clear in hindsight, even though they are strongly advised to do so.

Famously, former NBA player Jeremy Lin has been a potential victim of a lot of apparently smart people doing something not that smart. 

Lin, despite being a talent at the NBA level, has somehow earned no basketball scholarship offers from Division 1. He then flourished at Harvard as a walk-on only to go undrafted into the NBA draft. This despite statistics which suggested a high value pick for him.

Houston Rockets GM Daryl Morey talks in Michael Lewis ‘book “The Undoing Project” about how he decided not to draft Lin even though he scored high enough on the Rockets’ player models to be a potential first-round selection. That’s because Lin was considered “unathletic.” This turned out to be an example of a smart guy doing an unsmart thing.

“Houston Rockets fizzled  to draft Lin, one year later, they begun to calculate the speed of a player’s first two move: Jeremy Lin had measured the fastest first move of any player. He was explosive and able to change direction much quicker than most NBA players.”

Lin was astoundingly athletic. Preconceived ideas based on his appearance and unorthodox path to the NBA obscured this from wise people incentivized to make the best possible choices when recruiting basketball players, even though they had the evidence to prove Lin’s talent ahead of them.

As the probability of an event taking place is determined by the amount of information available to that market (with certain information sources considered to be more reliable than others) can these inefficiencies be found in the World of Betting until recently at the top level of sport?

Notice an outlier: Did the market skip Kosovo?

Kosovo joined FIFA in May 2016, enabling them to participate in official competitions in their national team. Their first official competitive fixtures worked out how deeply we might expect a team ranked as the worst within the World by FIFA to play ou.In their first ever game with Finland ended up with one surprise draw,then accompanied by nine straight defeats, including a thrashing by Croatia.

A glimpse at Kosovo’s record and World Ranking would make most of the people consider them as one of the worst teams in Europe.
However, the glimpse may have overlooked some crucial details. For a brand new squad, which was Europe’s youngest and yet to play a game with true home advantage , It was distinctly unfair to rate Kosovo alongside the likes of Malta and Andorra.

One glimpse at the squad’s talent was enough to see that they had a higher ceiling than indicated by simple statistics. This got to be particularly clear when their UEFA Nations League group was drawn:

Squad Transfermrkt valuation of squad (millions)
Azerbaijan 9
Faroe Islands 2.48
Malta 1.73
Kosovo 31

Despite their large lead in market value over the rest of the teams, Kosovo was eligible to beat the group behind Azerbaijan’s favorites as high as 2,75. 

This was reflected in the group’s chances of initial matchups. In their home match with the Faroe Islands:

Kosovo to win odds vs. Faroe Islands 1.61 (home) 

Azerbaijan to win odds vs. Faroe Islands 1.53 (home)

On the basis of market value alone, Kosovo was exceptionally comparable to the Hungarian team which hosted the Faroe Islands during qualifying for World Cup. Hungary was priced at 1.33 to win the match despite having a squad that was no more competitive than Kosovo in theory.

It is possible in this case that Kosovo was an outlier of Jeremy Lin type. Without any further inspection, they looked and graded like an awful team, just like a glimpse at Lin gave scouts a wrong impression of his athletic ability.

Can the price gap between Kosovo and comparative or second rate groups be due to the market belittling the quality of their group? And was it basically a case of Kosovo’s relative lack of experience built into the market price?

The example against outliers: Why is it hard to determine the potential value of Kosovo

The example for Kosovo being a disregarded outlier is fairly convincing. A new team that is priced below their level of capability intuitively seems like a solid value proposition.

The key problem is that it is difficult to determine whether, let alone the degree of that value, there was value present here. The same scenario will need to be rerun thousands of times, even if they are good in the short run, to get a statistically relevant assessment of their value. 

  • Read: What is a valuable bet?

Similarly, while it is very easy to conclude that Jeremy Lin has been underestimated at college level, his victory is not a sufficiently broad sample size to indicate that there are other Lin like prospects of the same level presently working office jobs.

In fact, we wouldn’t be thinking about him at all if he had picked up a serious injury at college or failed out of the NBA before Linsanity. Kosovo, like Lin, may be just classic examples of discrimination to survival. 

It is difficult to prevent selection bias here then. The outliers that we keep in mind are the ones who succeed – we forget the failing Kosovos, or the Lins who never made it.

Stabbing in the dull: Working with what we’ve

Whilst recognizing the difficulties involved in determining the importance of outliers, I believe it would be unwise for bettors to totally overlook them.

The resulting data revealed in Lin’s case that he was simply an underrated player. This was shown by the fact that the approach to scouting players by the Rocket which showed Lin was a miss was soon adopted by the rest of the league.

In a competitive market, teams of NBA were forced to reassess their assessment of talent, recommending  undervalued stars like Lin had previously been underestimated and the Rockets had now gained an advantage. 

The presence of a conceivable oversight the betting market could have made things more difficult to decide on a team like Kosovo, despite their successful outcomes.

  • Read: What is the bias of survival? 

Even though it’s almost impossible to measure what kind of edge a bettor may expect on a team like Kosovo that doesn’t  essentially mean there isn’t such an edge.

This makes it exceptionally troublesome to integrate such a bet into a staking strategy, because it is hard to decide what kind of advantage you have.

Whilst this makes returns troublesome to show, finding outlier occasions and teams comparable to the Kosovans, such as the Mayweather vs. McGregor bout, might  represent a viable but frustratingly unquantifiable and sporadic wagering technique. Indeed in an overall productive market.

Unfortunately, it would quickly gone in sports as well as in betting, if these edges exist. It would be smart to exploit it when  bettors who believe they have discovered a potentially lucrative outlier while it still exists.