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New Results on Betting Strategies, Market Selection, and the Role of Luck

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  • Giulio Bottazzi
  • Daniele Giachini

Abstract

We consider a repeated betting market populated by two agents who wage on a binary event according to generic betting strategies. We derive new simple criteria to establish the relative wealth of the two agents in the long run, only based on the odds they believe fair and how much they would bet when the odds are equal to the ones the other agent believes fair. Using our criteria, we show that for a large class of betting strategies it is generically possible that the ultimate winner is only decided by luck. As an example, we apply our conditions to the case of CRRA betting.

Suggested Citation

  • Giulio Bottazzi & Daniele Giachini, 2018. "New Results on Betting Strategies, Market Selection, and the Role of Luck," LEM Papers Series 2018/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2018/08
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    References listed on IDEAS

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    1. Blume, Lawrence & Easley, David, 2009. "The market organism: Long-run survival in markets with heterogeneous traders," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1023-1035, May.
    2. Alina Beygelzimer & John Langford & David Pennock, 2012. "Learning Performance of Prediction Markets with Kelly Bettors," Papers 1201.6655, arXiv.org.
    3. Anna, Petrenko, 2016. "Мaркування готової продукції як складова частина інформаційного забезпечення маркетингової діяльності підприємств овочепродуктового підкомплексу," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 2(01), March.
    4. Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk‐Hoppé, 2002. "Market Selection Of Financial Trading Strategies: Global Stability," Mathematical Finance, Wiley Blackwell, vol. 12(4), pages 329-339, October.
    5. Giulio Bottazzi & Pietro Dindo, 2015. "Drift criteria for persistence of discrete stochastic processes on the line with examples of application," LEM Papers Series 2015/26, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    6. G. Bottazzi & D. Giachini, 2019. "Far from the madding crowd: collective wisdom in prediction markets," Quantitative Finance, Taylor & Francis Journals, vol. 19(9), pages 1461-1471, September.
    7. Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
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    Cited by:

    1. G. Bottazzi & D. Giachini, 2019. "Far from the madding crowd: collective wisdom in prediction markets," Quantitative Finance, Taylor & Francis Journals, vol. 19(9), pages 1461-1471, September.

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    Keywords

    Bounded Rationality; Betting Strategies; Market Selection; Recurrent Processes; Luck;
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