Variance: The Zen of Betting

Charles Carroll

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One of the hardest concepts to get across in any kind of gambling—but especially horserace betting is “variance.”  Mathematically, it is a little more complex than the gambler’s “edge” I talked about last week.  But, don’t worry, I am not even going to try to explain it—this is one of those times it’s better to look at the phenomenon, rather than the math.

“Variance” is behind the fact that you can walk up to a craps table and watch a shooter make twelve straight sevens and not see one again for twenty minutes—even though you know, mathematically, there are 36 ways the dice can tumble, and six ways that sevens can be made, so they should appear one out of every six times.  You can be sure that over millions of rolls, that is the ratio—but, in the short term, you can see twelve straight passes.  Variance is the reason amateurs can beat professionals in three-day poker—and horse race handicapping—tournaments.

Still, the idea of variance can be really tough to swallow in horserace betting.  One major reason is that we like to think that there is a “right” answer when we handicap a race.  How many times have you looked back over a set of past performances, and thought, “Geez, if I’d taken that third speed-line back on the 4-horse….”

Well, maybe if you had, you would have won that bet—on the other hand, maybe you did exactly the right thing—given everything you knew about that race.

You were right to lose?  Sort of.  You didn’t lose—you made the right bet and it lost.  There’s a difference.  Another reason variance is so tough to swallow is that there’s a big ego element in handicapping.  If I win a race, I was right.  If you lose the same race, you were wrong.

Did you catch the little shift in there?  Neither of us put on our Nikes and sprinted down the track.  We didn’t win or lose a race—we won or lost a bet.  Egos, and the faith that there is a right “pick” in every race, tend to blind us to one of the keys to profit in horseracing.  The goal of horse race betting is to make money, and the sub-goal is—not to win races—but to make good bets.

You will know when you have “arrived” in horse race betting, when you can look at a lost bet and automatically know if there was something you missed in the handicapping—the selection of horses who figured to be in the money—or, if there was something in the way that you structured your bet—both are possibilities that you can learn from and handicap or bet more soundly in the future—OR, if there was absolutely nothing wrong with your decision—and nothing that needs to be changed.

Whatever your approach to betting, whether it is flat-rate Win bets, or some wacky approach to exotics, using an inverse-tetrahedral-Kelly-Criterion, you know one thing with absolute certainty:  you are going to lose bets.  The higher odds you play at, the lower your probability of winning, although the amount you can win gets larger.  (Remember the little “edge” equation last time? That’s how that side works).  Horse race betting has vastly more variables than Blackjack, so it is far more difficult to convince people that even with “perfect play,” you can lose—frequently, and with absolute certainty.  The trick is to make the scores outweigh the losses.

Once you have mastered your game, you need to develop the Zen of a Blackjack player (boy, there’s a twisted metaphor—not the dorks at most tables—the serious players).  Perfect play in Blackjack can be achieved.  A master player knows the percentage on every turn of the card and what the correct response is.  He tries to program himself, like a computer, to make the right move in response to “input.”  If he makes an actual mistake, he knows it and tries not to do it again next time, but—here comes the Zen:  he also knows that in pure terms, given the percentages of the game and his “edge” he could make every correct move and theoretically lose for months!  Since horse racing has vastly more variables than Blackjack, you would have to be a major bliss-ninny to take that big a series of losses with a Buddha smile, believing you are making right bets—without questioning something about your play.

So how could I prove that this can happen:  perfect horse racing bets—resulting in a string of predictable losses?

I cannot—it is impossible to prove directly—there are too many variables.  It is a very rare race indeed where you cannot look back with the wisdom of retrospect, and say in your best Chris Lincoln voice, “Well, clearly if I had taken the third speed line before the layoff….”  But, my point is that, given what you knew before the race, your betting decision might have been exactly right.  We have to learn to distinguish between legitimate learning experiences, and the red herrings of retrospect.  These red herrings often turn up as “rules” and “spot plays.”

Tom Ainslie said it years ago (in his masterpiece. “Complete Guide…”):  “A longshot wins a race.  A disappointed bettor consults his Form and discovers that the longshot had been timed in 36 seconds in a breezing three-furlong workout a couple of days ago.  No other horse in the race had worked so rapidly so recently.  Powie!  A new system is born!”

How can I prove that a lost bet is not necessarily either a mistake or the basis for a new system?  Many years ago, I had a great science teacher named Nello Allegrezza, who told me if I could not solve the problem, try solving the opposite problem, and see what you can learn.

So, what’s the flip side of “variance?”  How about if somebody did everything wrong and won?  That would be indisputable—no need to go back and search through the fish pile of reasons—they just plain WON.

I suggest you seat your handicapping ego in a lotus position while I rest my case with the following (from “Thoroughbred Quotes,” Thoroughbred Times, February 26, 2000):

“I don’t know anything about horse racing.  I don’t know anything about the odds.  I don’t know anything about this.  I picked up the sheets with the horses’ names on it and I bet the names I liked.  There was also one jockey I bet with my name, ‘Sellers.’”

This was Audrey Louie-Sellers telling Daily Racing Form how she defeated more than 270 other participants to claim first prize and $56,855 in the Flamingo Reno Winter ChallengeHer brother entered her in the tournament in return for babysitting his son during the contest.

(Footnote:  If you understand variance, this is an absolute hoot and confirmation of its power—but, unfortunately, the owners, trainers, and breeders who read Thoroughbred Times have never heard of it, so their long-standing image of us handicappers as pathetic dweebs rocks on.)


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