Vegas Doesn't Know
It's the people, the people who know
"Vegas knows.”
"The line is a trap.”
"I would hammer this line it's too easy, so Vegas probably knows something."
On October 2nd, 2017, some would say Vegas knew or even that the NFL was fixed. The Kansas City Chiefs were playing the Washington Commanders. The game had the Commanders as 6.5-point underdogs, and the total was set at 47.5. The Commanders took an early 10-point lead, and the teams were tied at 17 after three quarters. The teams would trade field goals and be equal at 20 before Harrison Butker, the Chiefs kicker, would make a field goal with four seconds left for the Chiefs to take a 23-20 lead, the game was effectively over for most.
That is until Justin Houston had other plans and decided he didn't care about anyone's bets. As he should. He has a family to support, not bets to cash.
It all began with four seconds left, when the Commanders still wanted to win and thought they were very much alive. A fair thought as the clock hadn't ticked to zero. We see crazy finishes across all over sports and the Commanders thought they were next beneficiary of a crazy finish. They were right except for one key part.
Four seconds left. Four seconds for a miracle to happen. Four seconds for the Commanders to go win the game. Let the fun begin.
The Commanders QB Kirk Cousins took a step back in the pocket and threw it to WR Jamison Crowder. Crowder didn't have much real estate and if he were to get tackled, the game would be over.
Now, ensued the game of hot potato. The Commanders passing it around hoping someone would catch a lane and dance all the way to the endzone. Crowder tossed the ball back to Cousins. Who then tossed it to TE Jordan Reed. Reed then tossed it to RB Chris Thompson. Except, Thompson couldn't handle it. A live football on the ground, up for the taking.
Justin Houston, a defensive end for the Chiefs, picked it up and danced his way all the way into the end zone. The exact opposite of what the Commanders wanted and the last thing that people who had bet on the Commanders needed.
A game seemingly over, now resulted in the Commanders no longer covering the 6.5 point spread and the total going over. Before that play, the Commanders trailed 23-20. They were covering the 6.5 point spread and the teams combined for 43 points, below the total of 47. A disgustingly bad beat for someone who bet the Commanders or someone who bet the under. A meaningless touchdown ripped their winnings right out of their hand all by a series of unfortunate events.
Some people might say, “Vegas Knows.” “The NFL is fixed.” “They always knew the Chiefs were going to cover the spread and the total was going to go over.”
Why Vegas Doesn’t Know
The truth is, Vegas doesn’t know. The people are who know.
Oddsmakers in Vegas set the opening lines. They throw a very educated guess on where they think the line should be and then let the people, or the market, determine what is fair. Professional groups, professional individuals, and the general public will help to shape the line into an efficient number. If more money or “smart” money comes in, the oddsmakers will adjust the number accordingly. In sports like the NFL, a wide variety and depth of information is available. You have stats as simple as completion percentage all the way to something more complex such as expected yards after the catch, which uses tracking data such as how open the receiver is to determine how many yards a player was expected to gain after the catch.
When a crazy sequence happens, as previously mentioned, it makes sense the line was so close, or so efficient, because you are betting into an efficient market. Some professional bettors look at things such as barometric pressure to determine how that may affect a game. The data is everywhere and things you wouldn’t even think of our accounted for. You may not think of it but some else will and that will get priced into the spread or total when they place their bets. However, to say the reason why your bet suffered a “bad beat” was due to Vegas knowing something is a disservice to the people.
We, as a whole, are a very smart species. There is a reason why we have existed and evolved for over 300,000 years. Just like what it took to evolve, in sports betting markets, we take a giant set of independent judgements, and we average them to produce a final judgement, or number, with great accuracy. It is the wisdom of the crowds. It is smartness of the people. It is the intelligence of the masses.
The Wisdom of the Stock Market
Take the stock market. The most efficient market in the world. It is very hard to beat the market. The prices in the markets are determined by opinions of a multitude of individuals around the world. The stock price is a collective assessment from firms, traders, individuals, etc. So, if you think the market is massively undervaluing the new Metaverse for Meta, formerly Facebook, just know that this has already been priced in by the crowds.
Some may say that the “Vegas” of the market is large firms such as JP Morgan or Wells Fargo. Large financial firms that “know” when something is about to break. Well, I am here to tell you just like Vegas doesn’t know, neither do JP Morgan or Wells Fargo. It is the wisdom of the crowd that determines these prices. The millions and millions of people all with different opinions that help to determine price discovery and how a stock or asset is best priced.
To show you how Vegas in fact doesn’t know in the stock market, take a look at the Silicon Valley Bank situation. Half of Wall Street buy analysts had a buy rating as Silicon Valley Bank began to implode and crumble right before our very eyes. Sometimes, they know as much as we do.
Even our favorite person, Jim Cramer thought SVB was quite the tasty investment at the time. Roughly a month before the bank declared for bankruptcy, he is quoted saying, “So you could argue that SVB’s nearly 40% rally this year is barely a drop in the bucket.”
Well, that hurts to hear. Bankruptcies don’t magically appear overnight and are the result of financial mismanagement and malpractice that ultimately accumulate and accumulate overtime before the top blows off aggressively and loudly so everyone can see what was teetering under the surface this whole time. No one knows, it is the crowd that knows. The informed opinions that come together to create a final judgement deemed to be accurate.
The Jellybean Experiment
In 1987, Jack Treynor, an American economist and finance professor, famously conducted the jellybean experiment. He brought a jar into a class of 56 students that held 850 jellybeans and asked the students to guess the number of jellybeans that were held inside the jar. The game is a tale as old as time. When we were young, a teacher would always play a guessing game of this sort and we would feverishly try to count the dimensions of jellybeans, or other items, in hopes of winning the jar if we were right. Unfortunately, I could never outsmart the crowd and bring home the jar.
However, what came out of such a simple experiment was quite interesting. The group estimate was 871 jellybeans, roughly 2.5% off of the total of 850, and only one of the 56 people made a better guess than the group average. Only one individual could outsmart the crowd. The wisdom of the crowds. The collective judgement was better than all but one individual judgement.
Michael Maubossin conducted a similar experiment in 2007 at the Columbia Business School. He brought a jar of jellybeans to his class of 73 students. He offered a $20 reward to the best guess and a $5 penalty was put in place for the farthest guess from the correct answer. To prove Jack Treynor’s experiment was no fluke, of the 73 guesses, only two individuals were better than the average. The jar contained 1,116 jellybeans and the average guess was 1,151, off by roughly 3.1%. Quite impressive at that volume as who even knows what over 1,000 jellybeans would begin to look like. Two of 73 individuals guessed better than the group. These aren’t just any individuals either, these are some of the smartest individuals in the world who are obtaining an education from a world class university. One of the best universities in the world, an ivy league education. Individuals are smart but the people are smarter. We as a collectively whole do not lack intelligence.
Parting Words
The people, the people they are smart. They are intelligent. They have wisdom. We like to think some overlord or large organization determines the numbers or spreads in the sports betting markets or some financial firm determines the correct prices for stocks in the market, but that notion is quite false. The masses do. The power of independent thinking combined together to innovate, to transform, to progress is quite powerful.
We, as humans, have come quite far over these past 300,000 years. No one could have imagined electric vehicles, Bluetooth headphones, smartphones, the list goes on. It is the wisdom of the crowds that took us here. The people who continued to combine independent thinking to produce innovation that worked. Just look at how far the wisdom of the crowd has taken us. It is the people, not Vegas or any financial firm. So, if anyone ever tries to say, “Vegas knows”, just remember Vegas doesn’t know anything, it is the people that do.
Happy Easter to all. Enjoy your day however you may celebrate.