cricbaba: Exploiting the hot hand fallacy in football betting markets

Cricbaba once emphasized that markets with the highest liquidity, such as the Premier League, typically offer odds that accurately reflect the true probabilities of outcomes. This means that once bookmakers set their odds, it becomes challenging for bettors to find profitable opportunities, regardless of which team they support. Despite occasional errors by bookmakers, the sheer volume of games and random nature of team news make betting outcomes largely unpredictable. In the long term, luck has minimal impact, leaving bookmakers with profits and most customers with losses.

However, the efficient market hypothesis has faced criticism in recent years. Many argue that human behavior does not always lead to efficient pricing due to systematic biases and errors. One common bias is the tendency to overestimate or underestimate the probabilities of certain events, known as the popular and unpopular bias. Another bias is the hot-hand fallacy, where individuals mistakenly believe that winning streaks will continue due to a perceived causation rather than randomness.

In football betting markets, the hot-hand fallacy can lead to misjudgments. When a team enjoys consecutive victories, bettors tend to invest more money in them, causing their odds to decrease. This occurs because bettors overlook the influence of luck and overestimate the reasons behind a winning streak. Consequently, favorite teams on winning streaks are more likely to regress to the mean and start losing, resulting in lower odds than warranted. Conversely, underdogs, often overlooked and under-betted, may offer value to bettors as they have a higher chance of winning and, therefore, potentially provide expected value.