Making $ense of Baseball: An Econometric Approach

Ever since the ancient Greeks first flipped a Drachma, gaming and probabilities have gone hand in hand. From the endless examples of dice throwing and coin tossing in statistics classes to the innovative approach to card counting by Edward Thorp (Beat the Dealer….) there always has been a desire to “beat the house.” This has been a most elusive goal at best. Sport gaming has proliferated in Las Vegas, over the internet and even in the hallowed halls of Wall Street.

Baseball is unique in its finite nature of options when a batter faces a pitcher. There is no sports endeavor on earth that quantifies performance more than baseball. However, utilizing such information for gaming purposes is usually relegated to the “tipster” or “insiders”.

Taking a scientific approach to baseball and gaming has traditionally yielded less than spectacular results……..until now! Runs are the currency of baseball. Linking what causes run production is at the foundation of this economically based research. The challenge of building an effective baseball production function (in the spirit of Cobb-Douglass and Robert Solow) has been answered. The presentation covers:

• Analyzing the cause and effect of run production
• Building a detailed stochastic forecasting model of a baseball game
• Integrating “lines and odds” into the economics of Expected Values of Return on Investment
• Creating a wagering decision algorithm
• Incorporating a control system

Definition of terms, methods of formulation, examples and results will all be graphically presented.

Picking a winner is not the same thing as making a smart bet. Building probabilities of winning and run production are brought together in a pragmatic manner (making smart bets) by utilizing the family of Palisade products, i.e, @RISK, StatTools, and BestFit.