Before computerized analytical models became common place how did bookies set odds.
Was it just through a hell of a lot of mathematics and statistics or was it just more of a guestimate as to what odds would make the bookmaker a profit in the long run?
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In horse racing for example, the “juice” is about 18% (more or less depending on certain factors.)
So the bookie takes a $100 bet, but only $82 goes into the “payout pool.” The $18 is divided in many ways, again depending, but the bookie gets to keep some of it. That’s his income.
Now all he’s gotta do is make sure his books “balance” so that no matter the outcome, he doesn’t lose. This is the same thing as hedging. If he does this right, he breaks even on the bets, and keeps his portion of the “juice.”
In a simplified example, it’s a two horse race, Secretariat vs. Sham.
The bets come in. $1000 on Secretariat. $500 on Sham. That’s $1500 altogether. For simplicity’s sake, let’s say the “juice” is only 10%. The bookie keeps $150 for himself. Now $900 is in the Secretariat pool and $450 in the Sham pool. Secretariat’s odds are 1/2. Sham’s odds are 2/1.
As more money comes in, the equation changes.
Somebody puts $500 on Sham. Now it’s $1000 bet on each, ($900 after the “juice”) and each horse is 1/1 or “even money.”
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