Clayton Graham being interviewed by Jody Avirgan for FiveThirtyEight, the statistics-minded ESPN website founded by statistician Nate Silver.
Baseball fans, take note: next time you’re looking to place a bet on a game, you may want to use @RISK. That’s what DePaul University professor Clayton Graham did to create his baseball wagering model, presented at the p
In the paper, Dr. Graham discusses how he uses Palisade’s DecisionTools Suite to create a baseball investment model to calculate the probability of winning individual games and the economic consequences of each wager based against each game’s betting line. Additionally, the research sought to determine the optimal bet size, based upon the risk tolerances of the investor.
Creating the model required the following five steps:
- Building a predictive function that determined the probability of winning each game
- Defining the betting line of each game, which determines the payoff or loss
- Establishing an economic relationship between the production function and betting line
- Creating a risk-return based investment function compatible with the production model
- Quantifying the results model
“Palisade’s DecisionTools Suite was invaluable to the success of this lengthy project, as it quickly and easily computed the myriad statistical scenarios,” said Dr. Graham. “Baseball has a seemingly infinite set of possibilities with each at-bat, and the intricacies of determining what may happen would be impossible to determine manually, with any degree of expediency. DecisionTools Suite is also very easy to use and intuitive because it operates in Microsoft Excel. I can say, without hesitation, that this project would not have been possible without DecisionTools Suite and the technical support Palisade offers.”
Once the model was complete, an initial bankroll of $1,000 was used to place wagers (about two per day) on Major League Baseball games beginning on June 16, 2014 and through the conclusion of the World Series on October 29, 2014. The amount wagered on each game was determined by the analysis, and 75 percent of the time, games didn’t offer enough statistical edge to even warrant a wager. Key results included:
- 68 percent of wagers resulted in wins,
- 35 percent return on daily at risk capital,
- Initial $1,000 investment grew more than 1,400 percent during the season.
“While this paper is not a typical utilization of DecisionTools Suite, the research clearly shows the power and accuracy of the software, and we are thrilled that our solution played a part in achieving such a prestigious honor,” said Randy Heffernan, Vice President, Palisade. “It is especially gratifying to see Professor Graham’s tireless work being recognized at this level, as he has been a Palisade customer and champion for more than three decades.”
Check out Dr. Graham’s presentation at the Sloan Sports Analytics Conference:
Read the full research paper here.
Read the press release here.