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Now That’s a Betting Pool June 22, 2006

Posted by Brian L. Belen in Academically Speaking, Odds and Ends.
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I found myself in the company of a couple of my classmates for an impromptu dinner last night. In the process, I met one of their friends who’s in another academic program and presently working as a financial trader (or so I gathered) somewhere North of the city. Seeing as he was in the company of three people studying to be economists, he excitedly told us about his company’s intra-office betting pool for the World Cup. He’d been dying to tell other people because of how neat it was, but didn’t because few really appreciated it.

He was right. It was a pretty awesome way to design a betting pool. Here’re the features:

• A bet (in this case $10) entitles you to a certain number of “shares” (in this case, 10 shares), which must be “invested” in the 32 teams playing in the World Cup.

• Each person in the pool can only invest in up to six teams.

• Each person’s winnings is not just dependent on whether or how many matches the teams win or lose, but on his/her relative “ownership” of the said teams.

• The pool closes before the beginning of the Cup, so all “investments” are locked in until the end.

And therein lies the novelty of the entire thing. The whole betting process becomes more like a game, where each bettor has to anticipate where everyone else will allocate his shares in order to maximize earnings, aside from picking winners. For instance, ploughing all your shares into a favorite like Brazil isn’t likely to pay off as much even if they win matches if everyone in the pool has bet on Brazil (and thus you just have a few shares of the total Brazil shares). On the other hand, if you bet heavily on a dark horse like Serbia and Monenegro that few people are optimistic about, and in the process accumulated a significant “ownership” of the team, then you’re likely to earn a heckuva lot if and when they do win.

This makes for very interesting scenarios that only people in the finance profession could ever have concocted. As it was told to us, you end up with talk about diversifying one’s portfolio, bandwagon effects and positions getting diluted on bullish teams, or of liquidating one’s shares, along with the usual sports chatter.

This is just too cool for words. I bet the lucky soul whose three shares in Ghana give him a 70% ownership stake must be one happy camper.

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