Thursday, August 6, 2009

Black Swan Betting

I just completed reading Nassim Nicholas Taleb's book "The Black Swan". It is an amazing book that has caused me to rethink the way I now look at the occurence of events. Naturally, because of my interests in horse racing and especially in betting, I have started looking at how the Black Swan concept may apply in horse racing.

For those of you not yet familar with the Black Swan it refers to the "impact of the highly improbable". In horse racing the "highly improbable" are the extreme long shots. One of the advantages in horse betting is that you can include the extreme long shots in your betting strategy.

My wife and I were back at the Kentucky Derby in 2005. I had a gut feel before the race that any horse could win so I bet $5 to win on all 20 of the horses entered in the race. Mike Smith brought Giacomo in at over 50/1 odds. For the $100 it cost me to make this bet the return was $256.50. At the time the Black Swan concept didn't exist. What did exist was the feeling I had and to take advantage of that feeling "I bet them all".

Just to show you that this is not such a crazy bet I did a little research on the internet and found from my analysis that if you had "bet them all" in the Kentucky Derby each of the last 5 years (2005 through 2009) that you would be $38.60 ahead assuming just $2 bets. Further, if you had "bet them all" for the last 11 years from 1999 to 2009 that you still would have come out even. You would have not lost any money and had a fantastic time.

So what does this prove? Well, it establishes the fact that this is not such a crazy betting strategy after all. It has some merit under the right circumstances.

I have a feeling that from years of experience observing that Grade I races may also have many Black Swans. I will be researching this in the coming weeks and I'll report back to you what my findings are.

For those of you who may doubt my numbers above go to
http://www.drf.com/tc/kentuckyderby/2009/stats/stats.html and run the math for yourself.

Stay tuned and good luck betting.