new idea on prices. why do we bother?

[Rushian]

This is indeed an interesting discussion. If I may, I'll add a few thoughts, some of which are in direct agreement/disagreement with other posts further up.

Any event, be it a football match, a coin toss, a roulette spin or a team winning the league a year down the road has some probability of occurring attached to it. That probability is generally unknown, unless the event is a controlled one (e.g. a toss of a "perfect" coin) but can be estimated with various degree of accuracy.

If we take a coin toss, my estimation of that probability may not be vastly different than anyone else's, or even the bookie's estimation. How we reached that estimation, e.g. from observing a 1000 tosses, from prior knowledge, or in the bookie’s case from the amount staked on each outcome does not enter the frame. But the fact remains that the “correct” probability (and thus prices/odds) is still unknown. As to whether each of us has discovered “value” in the odds offered, this will only be known after a series of bets, when essentially it is the method of estimation that is being tested rather than the choice of bet.

Turning the attention to something more complicated such as a football match, my estimation may be quite different than anyone else’s since I may take into account some factors, whereas you may consider other. But again the fact remains that there is an unknown probability of Team A beating Team B. Note however that this will not directly enter into the equation of deciding whether to bet or not since that decision is based solely on the comparison of my estimation of that unknown quantity to the prices offered (and hence the bookie’s estimation – including the profit margin). Essentially, as someone else has put it, you are betting against someone else’s estimation (be it the bookie’s or in Betfair’s case another punter’s). Again, a series of bets will determine whether the estimation method you are using is better than the method utilised by whoever sets the prices.

In my mind, the bottom line is this: not everyone can agree whether a particular bet offers value since that will always be dependant on each one’s evaluation of the underlying unknown probability of that event occurring (which btw is also the correct probability and it exists!). In a sense, something may be undervalued to me but overvalued to someone else.

Hopefully I have added something useful to this discussion. If not, ignore me!