Public opinion polls demonstrate that many “main street” stock-market investors believe that the game is rigged against them, and the alleged manipulators include high-frequency computer traders.  The same belief is widespread about pari-mutuel wagering on horses, where computer bettors are thought to have “unfair” advantages over everyone else.

Two mathematics experts from the University of Michigan have been researching the issue, using game theory, to determine whether computer-bettors, many who receive volume rebates from racetracks and advance deposit wagering companies, have a positive or negative or no effect on other bettors.  Alexander Munk, a doctoral candidate in mathematics, and Erhan Bayraktar, a professor of mathematics, state:

“By using computers to identify hidden patterns in past racing data and arcane mathematics to optimize every aspect of their betting strategies, horse racing quants can confidently wager staggering amounts.  At first, that may seem good: more money in the pot means the house and the winners take more home.  Still, their trades have been blamed for (among other things) driving away other bettors and shrinking prizes for everyone over time.

…it’s timely to wonder how these new gamblers armed with big data, powerful computers and advanced mathematics really affect the house and other bettors.

In research we recently submitted for publication, we used a subject in mathematics called game theory to analyze their influence.  How are quants with their big-time technology and seemingly unlimited funds really affecting everyone else involved in wagering on horse racing?”

Munk and Bayraktar have summarized their research (click here to see the summary) in a way that non-mathematicians can understand and they have also included a paper that more fully reports on their research (click here to access it).

The Michigan mathematicians’ findings provide insightful reading material, based on numbers rather than opinions, if you are interested in how large-dollar-volume computer betting and rebates affect pari-mutuel gambling pools.

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