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FREAKONOMICS MEETS THE BOOKMAKER

Recall from chapter 38 that if a bookmaker gives 11-10 odds on NFL point spread bets and sets a line so that half the money is bet on each side, then the bookmaker is guaranteed to make a riskless 4.5% profit.

Steven Levitt of Freakonomics fame showed that bookmakers can exploit bettor biases to make an expected profit exceeding 4.5% per dollar bet. Levitt obtained bettor records for 20,000 bettors during the 2001 NFL season. He found that much more than 50% of all money is bet on favorites and less than 50% on underdogs. When the home team was favored, 56.1% of the bets were on the favorite and 43.9% of the bets were on the underdog. When the visiting team was favored, 68.2% of the bets were on the favorite ...

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