As may have been noticed, RED has added bookmaker information to its provision this week (as well as going into Europe). What is behind this?
Well, RED is providing detailed forecasts of forthcoming events, but is hardly the only source of forecasts. In this day and age, bookmakers provide forecasts, via odds, of much more than RED provides. See here for tonight’s match between Bayern and Hertha in Germany.
If RED is confident in its forecasts, why this need to provide other sources of information?
Well, different forecasters have different methods, and can have different strengths in different circumstances. Ideally we would choose the best forecasting method, but there is plenty of literature in forecasting on combining forecasts, helped along by the late, great Nobel-prizewinner Clive Granger.
It’s also interesting. Where does RED differ from bookmakers?
But most mundanely, what exactly is RED presenting in its tables? The answer is a measure that might be called the probability of each decisive result outcome occurring. That is, each team winning. But bookmakers provide odds, not probabilities – so how do we arrive at this number?
The answer is we firstly take decimal odds (which are the fraction implied by traditional odds plus one), and take the reciprocal of them for each outcome (home win, draw, away win). Then we consider what the overround is – do these three numbers sum to one (which they should since they are the only three possible outcomes).
If we want to think about these numbers as some kind of forecast probability, we need them to sum to one. Different methods exist to do this, and the most simple is just to scale by that overround.
So for Bayern vs Hertha, as I write bet365 have Bayern at 7/50, Hertha at 14/1 and the draw at 7/1. In decimal terms that’s Bayern at 1+7/50=1.14, Hertha at 15 and the draw at 8. The reciprocals are Bayern at 87.7, Hertha at 6.7% and the draw at 12.5%. The sum of that is 0.877+0.067+0.125=1.069. That is, 106.9%, and an overround of 6.9%.
So we divide each number by 106.9% to get a corrected *probability* of 0.877/1.069=0.820, or 82%.
We do that for the average decimal odds, so we aren’t presenting any information from any single bookmaker. We aren’t providing any kind of advice on whether it may be profitable to bet on, to be clear. We’re presenting one measure that might be called a probability of an outcome, and we’re doing so to provide an interesting contrast between RED, a statistical model, and whatever kinds of models bookmakers use. Use at your own risk!