When in about one week the New York Giants meet the New England Patriots in the Super Bowl some bookmakers in Las Vegas will have a nail-biting evening. The odds of the Giants to win the Super Bowl in September were set somewhere around 80 to 1. And according to some sources in the Vegas betting industry there is a significant number of tickets on the Giants out there.
The traditional view of economists on betting markets was that sports books set their books so that they balance out, which means that they attract enough money on both sides of a be perfectly balanced. This view of the market was challenged by a seminal article by Steven Levitt (2004) in The Economic Journal. His hypothesis was that sports books set prices to maximize profits instead of being balanced. Although Levitt's findings are still debated, this could explain why Las Vegas sports books are nervous about the Giants winning the Super Bowl.
Another aspect of the story is the value of betting odds as predictors for who will eventually win a contest. As the odds were 30 to 1 against the Giants when the playoffs started, obviously something went wrong in terms of predicting the winner. So is there a rational strategy behind this or were odds makers simply terribly wrong? If they were simply wrong then they should be nervous because the Giants are actually pretty good...
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