Risk Intelligence

This was the follow up to the Magic Number.

It was in the last issue of Horseplayer that never got published.

An Englishman named Dylan Evans has written recently about something he calls risk intelligence (RI). It refers to a special kind of “intelligence” we all have (to varying degrees) that we use to define risk and uncertainty in our lives. Evans describes it as, “the ability to estimate probabilities accurately, it’s about having the right amount of certainty to make educated guesses.” In horse racing terms, it means that if you have enough information and enough skill at processing it to recognize when an investment is justified, you have a much greater likelihood of making money in the long run. To put it in more practical terms, if you bet a horse at 10-1 that you think should be 3-1, and you are good at calculating probabilities, in the long run you should make a healthy profit. Unfortunately, estimating probability is far easier said than done and ultimately rests on an individual’s ability to take limited information and a whole lot of uncertainty and come up with the right decisions. Above all, it depends on having a clear and unbiased ability to know yourself and recognize your limitations. As Evans started doing research, he found that most people are not particularly good at estimating probabilities. In fact his first thought was that just about everyone must be terrible at it. As he did more research, to his surprise, Evans found that a small group of people consistently had very high levels of risk intelligence – horse players. (To be fair, the other high RI groups are sports bettors, blackjack, poker and bridge players, and surprisingly weather forecasters.) I don’t imagine his finding is surprising to the vast majority of serious handicappers, and it underscores what many of us instinctively know: if you are betting without an edge you are just gambling. Or as Evans might suggest, if you are playing the horses and you have a low RI, it might be time to think about taking up tennis. (You can go to this website to take an online RI test at no cost http://www.projectionpoint.com)

What Evans critically points out is that people with very high RI’s are neither underconfident nor overconfident to an excessive degree. (But let’s be frank – we’ve all had a sure thing that we’d have bet the farm on given the chance, and that sort of makes Evans’ point. We don’t see it as overconfidence, but great handicapping.) In fact, once Evans started testing RI, he learned that most people tend to overestimate just how much they actually do know, which once you’ve been to the track also is not very surprising. There is always one person in the group who is absolutely, positively sure he is on the winner, often to the point where when his horse trudges across the finish line mid-pack he can thoroughly explain why the winner shouldn’t have won and he should have. The good news is that even if you don’t have a very high RI, it can be acquired.

Whether Evans knew it or not, he was building on the work of the well-known (at least in horse racing circles) psychologist Howard Sartin. Sartin treated compulsive gamblers based on the basic idea that if you wanted to cure losing, you had to teach someone how to win. In Sartin’s case he did it by developing an eponymous methodology based on pace principles and energy distribution, and for a number of years the so-called Sartinites were in great vogue in the handicapping world, with the height of the Sartin craze coming from the publications of Pace Makes the Race in 1991 and Tom Brohammer’s well-known book, Modern Pace Handicapping in 2000.

Sartin’s simple idea that learning how to be a winner was the answer to being a complusive loser certainly sounds logical enough. But, if you dig a little deeper, it is clear that there are emotional differences between expert and compulsive gamblers. First, skilled handicappers know when not to bet because of their ability to more accurately calculate probabilities. Second, while problem gamblers get a huge high from winning, losing doesn’t really bother them that much. On the other hand, expert handicappers do not get as big a rush from winning, but more importantly they thoroughly detest losing. This makes them constantly trying to improve their decision making process. To finish the thought, being armed with a good handicapping tool won’t be a lot of help if it doesn’t help you discern between a good bet and a bad one. And as many a great handicapper has lamented, if only I was a more skillful bettor, my profits would skyrocket. I can tell you the greatest bettor I have ever known was at best an average handicapper. In fact, it is an absolute fact that every successful horseplayer is a highly proficient bettor. Most of us spend inestimable time learning how to discern racing data, and figure out betting almost as an afterthought.

So, how do you improve your risk intelligence? The answer is pretty obvious. Keep detailed records of wins and losses. The wonderful thing about betting horses is that the results are not ambiguous. Either you win or you don’t. Either you make money or you don’t. You have to do the one thing that regular losers don’t do – constantly figure out which bets you lose and why. And most of the time the answer is less about your handicapping than your betting.

In my blog post “The Magic Number”, I described how to make and use an odds line for win bets. In this article we’ll apply similar reasoning to combination bets – exactas, trifectas, and superfectas. So while it wouldn’t be valuable spending any time discussing record keeping (you can figure that out on your own), it would be useful to get a little deeper into the topic of probabilities and betting the combinations.

I happened to be in Vegas recently having dinner with one of my brothers, when he said something I found illuminating. Handicappers are most proficient at assigning win odds, but almost completely untrained to assign place, show or fourth place odds. This is true whether you are trying to decide the chances one of the favorites will finish behind the actual winner, or if you are trying to assess one of the lesser runners. What does this mean? It means most bettors are at least initially going to be lousy at making combination bets such as exactas, trifectas and superfectas, and often when they hit them the return on investment (ROI) is something that should be unacceptable. Have you ever put $60 into a trifecta to collect only $120, and then wondered what you were thinking? Even money on a risky combination bet is not the road to riches.

Let’s start by examining some generalized race types. The example below shows the respective probabilities of finish for a hypothetical 2-1 horse (33% winning chance – and remember these are your odds, not tote board odds) in a 10-horse field. Assume this horse is in good form, was placed at the right level and has a good running style for the race. The table shows that this particular runner has an additional 25% chance of running second and an additional 15% chance of running third. Thus, its total prospect for finishing in the money is 73%. For those of you wondering, the best horse in the race should have its highest percentage number in the win category. Does this mean the horse has less of a chance of finishing second? Technically yes, although if you were making a straight place bet you could say the probability of getting a payoff in this example is 58%. Finally, take note that the percentages are not based on an exhaustive study but are used as an illustrative hypothetical. In this case, the point is that not only does the horse have a great chance of winning the race, it also has a high probability of being part of the exacta and trifecta, and a fairly small probability of finishing in the back of the pack. As you’ll see later on, you actually won’t have to create percentages for other than the win position, so don’t get panicky. We’ll call this runner the high-win type (HW).

High-Win Type

Finish Pos             % Probability

  1.                                   33
  2.                                   25
  3.                                   15
  4.                                      9
  5.                                      6
  6.                                      5
  7.                                      5
  8.                                      2
  9.                                      0
  10.                                      0*

*Percentages may not add up exactly to 100% due to rounding

 

The second type is the opposite of the first – the low-win type (LW). This horse has a much higher probability of finishing in the back of the pack as opposed to in the money. The first two types represent the two extremes. Horses with high probabilities of winning conversely have low probabilities of finishing well back, and horses with low probabilities of winning have much higher probabilities of finishing near the end of the pack. But, from the way the second type is constructed, it is also clear that the chances of the high-odds horse finishing third or fourth is not insignificant, and this will be useful when we start discussing betting. In fact, the probability of this type of horse finishing fourth is about the same as for lower-priced horses. 

Low-Win Type

Finish Pos                 % Probability

  1.                                          2
  2.                                          3
  3.                                          6
  4.                                          9
  5.                                        11
  6.                                        14
  7.                                        15
  8.                                        16
  9.                                        12
  10.                                        12

Before we get into talking about how to better make combination bets, let’s add three other types. This represents the mid-priced type (MP), in this case a horse about 5-1 on your line. These horses have far lower win probabilities than the high-win types but are almost as likely when it comes to an in-the-money finish.

Mid-Price Type

Finish Pos                  % Probability

  1.                                          17
  2.                                          20
  3.                                          17
  4.                                          15
  5.                                          11
  6.                                            8
  7.                                            6
  8.                                            3
  9.                                            2
  10.                                            2

This next type applies to horse with a low probability of winning, but a high probability of finishing in the money. We’ll call it the in-the-money (ITM) type. It looks similar to the normal high-win type from the place position on, with the win percentage near zero. You often see this pattern in “professional maidens” (horses with 10 or more starts and a high number of place or show finishes) or horses with some version of “seconditis” (the horse that looks like 35-1-11-13). The term we used for that type of runner was the “sucker horse,” and the only time these horses seem to win is when they are battling in the stretch with a similar sucker horse. However, these horses often represent great opportunity, because the crowd will confuse their chances of winning with their chances of finishing in the money, often sending them off as severe underlays. You can feel safe putting them in the back holes, and save money by leaving them out of the win slot.

In-The-Money Type

Finish Pos                 % Probability

  1.                                             2
  2.                                           25
  3.                                           24
  4.                                           15
  5.                                           10
  6.                                              8
  7.                                             7
  8.                                             6
  9.                                             2
  10.                                             2

The final type is the All-or-Nothing (AON) sort, meaning either the horse wins or finishes somewhere in the pack. This pattern would be most common among “need the lead” types, where if they face a stressful challenge, they fold badly.

All-or-Nothing Type

Finish Pos                  % Probability

  1.                                           33
  2.                                              7
  3.                                              6
  4.                                              9
  5.                                            11
  6.                                            11
  7.                                            10
  8.                                               5
  9.                                               4
  10.                                               3

As I said above, most of us, and especially the crowd as a whole, are far more effective at assigning win percentages, and until someone writes the definitive piece on “How to Pick a Horse to Finish Second,” it will probably remain that way. We’ve all been conditioned to “pick winners,” but with the best payoffs available in the combination pools, it becomes critical to figure out which horses to use and how. Unfortunately, it isn’t as simple as saying the horse with the second highest win probability has the highest place probability and so on. I don’t know exactly how often in a full field the first three choices finish in exactly that order, but I suspect it is a fairly rare occurrence. In the same respect, having a longshot fill the show spot happens far more often than you would expect given its low probability of winning.

It’s not the case that there are only five types of runners, but in general, any other type is just a slight variation on one of these five. So, armed with this knowledge, how do you become a better combination bettor?

We’ll start with the exactas and I’ll make it easy for you. The table below shows the payoffs you would need to realize 50% profit from any respective $2 exacta combination using YOUR pre-race win odds line (it’s not perfect but remember, I promised you wouldn’t have to calculate place probabilities and it’s better than guessing). In general, if the exacta is paying less than the amount shown, it is not a worthwhile bet, but as always, use your discretion.

                                       Place Horse

    3-5 4-5 1-1 6-5 7-5 3-2 8-5 9-5 2-1 5-2 3-1 7-2 4-1 9-2 5-1 6-1 7-1 8-1
  3-5 4 5 6 7 7 8 9 10 12 14 16
  4-5 6 6 7 8 9 10 11 13 14 16 18 21
  1-1 7 7 8 8 10 11 13 14 16 17 20 23 26
  6-5 8 8 9 9 10 12 14 16 17 19 21 25 28 32
  7-5 9 9 10 10 11 12 14 16 18 20 22 25 29 33 37
  3-2 8 9 10 11 11 12 13 15 17 20 22 24 26 31 35 40
  8-5   8 9 10 11 11 12 13 14 16 19 21 23 26 28 33 38 43
Win 9-5 8 9 10 11 12 13 13 15 16 18 21 24 26 29 32 37 43 48
Horse 2-1 9 10 11 13 14 14 15 16 17 20 23 26 29 32 35 41 47 53
  5-2 11 13 14 16 17 18 19 20 22 26 29 33 37 41 44 52 59 67
  3-1 14 16 17 19 21 22 23 25 26 31 35 40 44 49 53 62 71 80
  7-2 16 18 20 22 25 26 27 29 31 36 41 47 52 57 62 73 83 94
  4-1 19 21 23 26 28 29 31 33 35 41 47 53 59 65 71 83 95 107
  9-2 21 24 26 29 32 33 34 37 40 47 53 60 67 74 80 94 107 121
  5-1 23 26 29 32 35 37 38 41 44 52 59 67 74 82 89 104 119 134
  6-1 28 32 35 39 43 44 46 50 53 62 71 80 89 98 107 125 143 161
  7-1 33 37 41 46 50 52 54 58 62 73 83 94 104 115 125 146 167 188
  8-1 34 43 47 52 57 59 62 67 71 83 95 107 119 131 143 167 191 215

             

Finally, some DOs and DON’Ts with regard to the running types described above.

  • DO turn any low or medium priced horse into much longer shot. If you bet an exacta with our hypothetical 2-1 horse on top, demand payoffs at least in line with the exacta table.
  • On the other hand, DON’T turn your 2-1 shot into an 8-5 shot. Say you put the 2-1 horse on top of four other horses in a $2 exacta. That would be the same as making an $8 win bet, and if the 2-1 horse pays the minimum $6, that $8 win bet would return $24. So any of the four exactas that pays less than $24 is a bad bet. You can overcome this by varying your bet based on the payoffs, betting more on the lower priced combinations, and thus keeping any respective exacta payoff ahead of the total win bet. Still, you may often be better off dropping the low paying combinations and shifting your bets to the win pool.
  • DO make sure to have win money on a HW or MP overlay (when comparing your odds line with the tote board odds).
  • With the HW type, DO use the horse heaviest on top in either exactas, trifectas or superfectas, slightly less in the place position, and slightly less than that in the show position. DON’T use the high win type in the fourth spot in a superfecta bet.
  • With the HW type, DON’T bet trifecta tickets with the crowd favorite on top and the next two choices in the second and third spots. Same with the superfecta. If you really think the choices will finish 1-2-3, look to work out an exacta bet. It will probably be a better value.
  • With the MP horse, DO use the horse aggressively in the place and show spots for exactas, trifectas and superfectas. DON’T use the mid-priced horses on top in exactas, trifectas and superfectas equivalently to the high-win types. I know I’m often guilty of hitting the “box” button in the exacta, mostly because it is easy, but if you really believe one horse has a higher probability of winning than another, you should back that opinion with your action.
  • DO use the LW type in the third spot in trifectas and the fourth spot in superfectas. When it comes to the trifecta, the “all” button in the third position can reap big benefits. Remember the basic principle. The crowd is not nearly as efficient at assigning probabilities to the place and show positions.
  • When it comes to the AON horse, DO play the horse only on top in your combinations. As hard as it may be, unless the field is short, assume that if the horse doesn’t win, it’s likely to not even finish in the money.
  • When it comes to the ITM horse, DO single them underneath the higher win probability horses in the exacta, and in the place and show spots in the trifecta and superfecta. When you feel comfortable not having to reverse the exacta, you can more easily turn the winner into a higher priced horse. Remember as well, any time you have a single in one of the spots in a trifecta, you conceptually turn it into an exacta box. A single with three horses in the trifecta is six combinations, same as a three horse exacta box. Similarly, you can do the same thing in a superfecta.