Squares & Sharps, Suckers & Sharks

Joseph Buchdahl, author of Fixed Odds Sports Betting and How to Find a Black Cat in a Coal Cellar, has a new book out called Squares & Sharps, Suckers & Sharks: The Science, Psychology & Philosophy of Gambling. The book requires more than one reading to understand its full import. I hope my review after just the first reading can do justice to such a weighty tome.

The introductory chapter contains a spoiler alert "this book will not provide you with a winning system". The get rich quick mob need read no further. Students of probability and risk will find the book very satisfying. By student I mean all of us who leave no stone unturned in the pursuit of knowledge. The book will provide you with a rationale as to why you gamble and your chances of success.

The early chapters contain the obligatory history of probability theory and of gambling, the latter with an emphasis on morality. Reading the history of probability theory again was no chore, in fact the chapter is very concise, the most complete single chapter history of chance that I have read. Starting with Pascal and de Fermat, through Laplace and Heisenberg and ending up at quantum, chaos and game theories

Mankind has probably (though I shan't bet on it) been gambling since pre-history. Indeed life itself is a gamble, for early humans more so as they struggled to compete against far stronger animals. Instinctively, humans are pattern matchers. Even when no pattern exists they try to look for order. Such behaviour has been found in other primates and even birds so pattern matching is probably some sort of survival tool for food discovery and danger avoidance. Without risk taking it is conceivable that humans would not have evolved at all.

The biological imperative for risk taking is amply covered by Buchdahl. Men (and it is usually men who gamble) have a need to prove themselves, a need to show off to potential mates. Gambling is a modern day alternative to preening oneself and challenging a rival to a fist fight, although that is still an option. Buchdahl also informs us of the neurochemical reasons for us to gamble. Evidently, we get a kick out of it win or lose (in some cases leading to addiction) to go along with any potential financial reward.

For much of history gambling has been regarded, usually by theologians, as little more than theft whilst the financial world is regarded as being for the common good. Prior to the 20th century it had been thought that we lived at the will of God in a deterministic world. Even great scientists of the time felt they were merely describing God's will. Yes, there was randomness in nature but it was God who decided what happened and when. Starting in the 20th century we became aware of uncertainty. Quantum theory shows that we cannot predict anything with certainty and that if there is a God then he does play dice, much to the chagrin of Einstein.

Today we can trade on a sports exchange as though we are stock traders and the supposedly moral investors in the financial markets can dream up toxic financial instruments with which to play in financial casinos. There is a confused dividing line between betting and investing, if there is a line at all. Since 2008 it is obvious even to the man in the street that betting and finance are pretty much the same.

The book moves onto more familiar ground with risk and reward but with the addition of rationality. Gamblers do not always make rational decisions and cognitive bias can affect the way we perceive information. Many often know they are betting into a negative edge but continue to do so in the belief that they will win regardless. The author gives his own example of betting against Germany in the 2014 World Cup on some flimsy defensive information and his own Englishman's bias against successful Germans not to mention overlooking the offensive power of the German team.

The luck of both bettors and sports players is considered in a chapter of its own. Buchdahl demonstrates that as skill increases the difference between players diminishes and luck plays more of a role in success. In any sport there is always a winner be it the last man standing in a knockout tournament or the one who scored the most points in a league. As sports science improves technique and nutrition we see the top echelons of every sport become larger such that there is little to differentiate between opponents. The deciding factor can then only be luck.

The same is true of sports bettors. Technological improvements in bet placement, data capture and data processing means that bettors are more informed than ever. This makes price discovery more efficient. As pricing becomes more efficient then the deciding factor between bettors is increasingly coming down to luck. The same is true of financial investing. Maybe this is why financial markets turn to inventing increasingly exotic instruments to play with.

The final chapters cover investigations into market efficiency and the wisdom of the crowd. How we are often fooled by success when in fact we are just a lucky outlier. Tipsters too are brought to task, the vast majority are just "monkeys throwing darts at a board". Websites that aggregate tipsters are utilising the wisdom of the crowd but neglecting losers in a classic example survivorship bias. Other tipsters are proven to be just downright criminal with doctored results and collusion.

There are a few who make large profits from sports and financial gambling. They tend to be highly motivated, highly skilled and able to discover private information that sets them apart from the rest so that mean regression does not pull them down amongst the crowd. To match them takes a lot of hard work and none of the naivety of the majority.

With this book Buchdahl has excelled himself again. Squares & Sharps, Suckers & Sharks is a thoughful book and a refreshing read compared to the usual fare. This book is as much required reading as Ziemba's Efficiency of Racetrack Betting Markets.

I recommend all of Joseph Buchdahl's books as an almost complete course on sports betting and trading. I also recommend that you read them in reverse order of publication with this being book being the first you read. Everything you need to know about finding edge and making the most of it is covered in these three books. Add to that the psychology of gambling and you will have a head start on the herd.