Uncovering True Outcome Probabilities

When analyzing sports betting markets, it’s crucial to understand the true probability of different outcomes occurring. Bookmakers build a profit margin, known as the “vig” or vigorish, into the odds they offer. To accurately assess the likelihood of events, this vig must be removed through a process called “devigging.”

The challenge lies in how the vig is allocated across the various outcomes during devigging. Different methods can lead to varying probability estimates, and choosing the right approach is essential for maximizing predictive accuracy and profits.

Let’s explore four popular devigging methods:

1. Multiplicative Method

This is the most widely used technique due to its simplicity. The vig is spread proportionally among outcomes, with higher implied probabilities (lower odds) receiving a larger share. However, this method fails to account for the well-documented tendency of bettors, even skilled ones, to overbet on long-shot outcomes and underbet on favorites.

2. Additive Method

With this approach, the vig is divided equally among all outcomes. While it considers the long-shot bias, it can sometimes overcompensate, resulting in negative probabilities for underdogs.

3. Shin Method

Utilizing an iterative algorithm, the Shin method aims to correct the favorite-longshot bias more effectively. It generally offers improved predictive accuracy, especially compared to the multiplicative method. For markets with only two outcomes (all OddsJam bets are two outcomes), it is equivalent to the additive method.

4. Power Method

This technique extends the additive and multiplicative methods by raising the probabilities to a constant power. Its advantage is that it always maintains probabilities within the valid range of 0 to 1, avoiding feasibility issues present in other methods. However, it can overcompensate for betting biases, adjusting long-shot probabilities more than the Additive method while adjusting middle-range outcomes less.

The optimal devigging method depends on the specific market circumstances and your historical success rates. It should align with your evolving expected value (EV) betting strategy.