Sunday, February 28, 2010

The Martingale System revisited

The Martingale System is a betting system whereby the bettor doubles his bets until he wins. The theory being that the event being bet upon will eventually result in a win, gaining back all the money lost and plus one extra betting unit. The problems will the Martingale system are well documented. The first being that the event being bet upon is independent. This means that a long string of losses does mean that a win is "due up" and more losses are equally probable.

To read more about the Martingale system, click here.

However, the Martingale system could be used on something that is not independent, like the outcomes of sports game. My original research was with respect to the points spread, and unfortunately the results were inconclusive.

However, what if I combined the Martingale system with research done by David Berri and Wayne Winston? David Berri talked about the short supply of tall people. What he means is there aren't enough seven footers who are skilled for each team to have one. Therefore, the competitive balance in the NBA is the worst of all the major sports leagues. Good teams continue to have good teams for a run of years because there are simply not enough talented big men.

Wayne Winston said that an NBA players performance one season is most strongly correlated to his performance the past season; compared to players in other leagues (NFL, MLB, NHL), it is a greater predictor of future performance.

So while Brett Favre or Tom Brady may have a record setting season one season and mediocre one the next, an All-Star NBA player will perform at a high level more consistently year to year.
This research confirms my earlier hunch, that top NBA teams don't lose games to inferior teams because of chance, but because of effort. That a top NBA team (like the Cavs or Lakers this season) wins 75% of the games it plays and most of the losses are when the team is lethargic.

This leads to my version of the Martingale System, whereby bets of increasing amounts are to be bet on a single top NBA team to win a game. If the team loses, they will likely try harder the next night to "avenge" the loss; and two losses in a row brings lots of publicity and media harassment, whereby the top team tries even harder. And a top NBA team, trying hard, is going to win a lot of games.

The NBA team "has money" thereby breaking the "no memory" independent variable weakness of the Martingale System.

I shall now do some analysis of top NBA teams and the lengths of their losing streaks over the past few seasons to determine the length of losing streaks for the top two or three teams in the league.

This could provide me with evidence of a new system that could yield a net positive return over infinite time.


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