Nate Silver on the Risky Business of Sports Betting

Pushkin. Hi, Michael lewis here and this is Against the Rules. A big part of sports betting is understanding risk, and recently I spoke to an expert on that topic, Nate Silver. Nate's been on Against the Rules before, talking about probability as an election forecast. He's now the author of a new book called On the Edge, and he's also the co host of a Pushkin podcast called Risky Business, along with writers, psychologists, and professional poker player Maria Kanakova. She's

So the village is easier to describe. The village is kind of the east Coast establishment, d C. New York, it's the New York Times, Harvard University, the government when the Democrats in charge. So it's very collective oriented. It tends to be risk averse. It got really into like COVID caution and cancelation and things like that. But it's also the expert class. It's generally pretty pretty competent and

So is the distinction between river and village? Also a distinction between is sort of the distincts that runs through the moneyball story, between scouts and people who are offering kind of from their gut and people who are actually able to do higher analysis and think statistically and probabilistically. Is it is? That?

Is it?

I think one distinction that I make in the general population is between people who actually think in terms of expected value and who think probably probabilistically, and people who don't. And that these two groups collide in lots of different places, and one of the newest places they collide is sports gambling. Uh, which is why we're doing a whole podcast about sports gambling and interests me this collision. But do you do you think of village as one and river as the other?

I think, I mean the village certainly leans heavily toward the people who they are. The people who got mad at me about the election forecasts and said.

You were wrong. So I still don't. You and I have talked about this. It is it's bewildering to me that intelligent people could look at your election forecasts and say that was wrong. They were they were better forecasts than what the market was saying.

So that that's a very very entire toistic though, is to say that my forecast said thirteen, the market said fifteen. Therefore my forecast was good, and you want the thirty percent to happen like that's a very very are people who understand markets and have had skin in the game in markets under understand that, and people in the in the in the village just don't, because in the village it's all about looking good to your peers and not trying to beat the system and not trying to outsmart people.

So well, his question I've been dying to ask you after I read the book, do you think that like the different characters you dwell on who are inhabitants of the river, do you think how different are they from one another? And I'll I'll put the question this way. So if I gave you a choice between a successful poker player and a successful sports gambler, who would you rather have managed your money?

The poker player.

The sports betters tend to be higher on the degeneracy. I don't know why exactly, but these are sill.

I'm talking about the successful ones, the ones who are who you know, who have a long and successful track record so that they are you would never do. They're they're operating with positive expected value, uh and and so not the degenerates.

The poker play.

I mean, the sports betters need a bit more street smarts because there's this whole second side to sports betting of how do you actually how do you get your money bad or money down good? If people think that you're a winning better so as a result, they are kind of wise guys are sharps a little bit more. And I associate that persona I mean, you know, Billy Walters in his day before he sobered up, was like a crazy partier, you know, out party, Doyle Brunson and

As a whole.

But you can be you have some kids who will like study computer solvers all day, just get a lot of reps in have very good personal habits and ecount of living playing poker. Whereas sports betters, your edge could go away at any time, right if you were cut off or or the market adjusts at any time, you could go from winning to losing. And that mentality, I think is is rarer and harder in some ways.

How do you feel about the sports gambling markets? Just generally? You are you? Are you a sports gambler?

Not at the moment.

This is so funny to me, because how you start is with baseball. Yeah right. I mean that if you had had the markets that are now available available to you in in two the year two thousand, you could have been a killing.

I think at that point the markets were were yeah, not very efficient, you know, Spanky kiro Loos. One of the people I talked to is likeyeh, I used use Pakoda and that's when we had like actual real five or six percent edges. So I bet the NBA for a year in the course of running the book made a total of twenty or excuse me, two million dollars in bets roughly to betting, basically ten thousand dollars a day, probably five two thousand dollars bets a day every day

In those hours.

Now most players lose money, so you're already in the like ninety seven percentile or something. But like, but yeah, but I'm aware that like to win at sports betting, you need to really be.

Devoted to it.

And also I got like limited by by all but three sites in New York State. I went from like nine places I could place bets to like two and a half.

Basically, do you remember how do you remember how that happened? Like who was quick as to find out that you didn't belie on their site?

It was MGM where And I was out at a bar with a friend watching the NBA playoffs, And there's like a message on the bottom line screing to bet ESPN that Chris Middleton, the bucks second best player, is out for the next round against Boston, right, and so so they were smart enough to like take the line off for the upcoming series, but they weren't smart enough to think about the derivative bets.

Right now, all of a sudden, the Celtics.

Are much more likely would in the Eastern Conference finals because they had this much easier path and their odds hadn't change. And I and I went to place a bet right and it was like for two thousand bucks or something. It's like you're limited to one thousand dollars in ninety nine cents some weird number or something like that.

Have you ever bet politics?

The short version is not really by the way, I am a paid advisor to Polymarket, so I'm not placing bits directly. We'll talk about the election, and they may place bets on on partly based on the information that I make, but I haven't. I don't have any problem with it in principle. I mean you get into like weird things where you know whether our numbers can move the markets or thinks.

You can you can move that you could prop there was certainly times when you could move the line.

Yeah I I yeah, I if y'ell slightly uncomfortable. But then again, like I am consulting, and so I don't think I have any problem with it. But in a narrow sense, I have not been on politics. But also because like this selection doesn't apply because it's like fifty to fifties, so my reputational risks are probably get blamed by half the country either way, but their heads at least.

Is do you have a sense of how efficient the political prediction markets are. Like, do you think you certainly would have had an edge ten years ago? But do you think you would you could actually have have systematic edge in those markets.

I do, but less than before. So I'll give you a slightly long winded answer. I mean, you know, so as recently as twenty twenty, there were lots of people willing to bet on Trump at you know, eight to one or ten to one after Trump had already lost, right, based on extremely implausible theories about the Supreme Court with no real basis, like overturning the results before January twentieth.

So you know.

Bill Bill Perkins, who I don't know if you know Bill Perkins is a consummate raverian. He runs a hedge fund, he plays huge poker games, involved in everything, wrote a book called Die with Zero, and he consulted like a Supreme Court expert. He's like, what's the chance that the Supremeport would actually take up this case? I think I was like zero, or if you want to be very cautious, one in five hundred and one in five thousand, and it's selling for one in ten, right, and so yeah,

You have a lot of.

Rich guys and or degenerate whales that have strong convictions about politics and are willing to get lots of money about a field that they don't necessarily know all that well. Bill an election model is a fairly hard problem because of the way that all these results are correlated and so forth to the long term capital management problems. Now, I do think that like polymarket has much more liquidity

I mean, I want to ask you a couple of questions that are relevant to how you teach people to think more like Riverians. I mean, some people do do it kind of naturally. They think probabilistically. They're kind of they move through the world probabilistically. But a lot of people just don't, and it's a problem for them, and it's a bigger problem the more opportunities they have to squander their money on in probabilistic circumstances like sports betting.

I mean, I mean poker is the like er archetypal activity of the River in particular, and like the Riverian mindset, and so there'd be a lot of poker. Although there are other games, Like a lot of poker players started playing out Matt the Gathering, which is a game that involves elements of strategy and randomness. The deck changes from

So much as having incentives to please people. You know, in academic.

Paper, it's rigorousness or its truthfulness is only kind of loosely correlated with its chance of being published, versus like, is it in the hot area of the literature? Does it come to a conclusion that's seen as the right political conclusion in certain fields?

And there are.

People in journalism who are like just really like fixating on I want to have the right answer, I care a lot about the truth who aren't. But like, but in poker and sports beenning and trading, then you're punished for your sense of bullshit and you and you you learn that in a very fine tune way, Like what's the long run really looked like. I mean, a big part of this is actually estimation. Where can you come to like a pretty good approximation quickly before the market

I don't.

Is Patrick Mahomes out for this game or something all of a sudden like and they know that and I don't. And so you have to make the decisions very fast. In trading, you have to make these decisions fast. And I think that can only be learned through experience and not a pure academic curriculum.

So it's it isn't it isn't you put them in the classroom when they're fourteen years old and teach them statistics. It's you force them to be a sports better or a poker player with their own money on the line, and they or and and and they and they start to associate their bullshit with the price uh and and and the market tells them when they're wrong.

Yeah. One of the one of the sports fans I talked to.

His name Kelly Stewart, and her her parents were kind of part of yours, I guess a little bit, and so they let her play in their poker game one time. They're like, we're not going easy on you at all, you know what I mean, We're gonna We're gonna teach you at this early age. I don't know she was eleven or whatever, what it's like to play poker against people who are better than you and there's real risk involved here. I mean, do you play poker, Michael, Do you do any of this gambling stuff?

So I in high school, I had a poker game and it was almost weekly. Uh. It was with the same guys, kind of six or seven guys, each of whom had a very particular personality, one of whom ended up being an iron Randian and a gazillionaire hedge hedge fund manager who was actually short uh subprime mortgages going

Are you?

I mean, I think there are slightly separate things here. It's I mean, are you like a thrill seeker in general? Like there's the idea of like.

Sky like the idea.

I don't think i'd skydive because I would calculate that like the risks outweigh the reward rightly.

So I did that. I did that once. Uh, I jumped out of an airplane just because I thought I had. I went through a phase of life in college and just after where I thought I'm going to have every possible experience. Well, I thought I might write about it one day, and I thought, I just want to be able to. I want to have all these experiences that I know I won't have later, So i'd, you know, scuba diving and skydiving. And it's just like I had a long list of shit like that idea. I didn't.

Okay, that seems correlated in some way. I mean, so if you look at the Big five personality trades, the two things that are kind of and there's no like risk taking personality trait per se, but high openness to experience and and low neuroticism.

So I got that. I think those two I basically have. I mean, here's a form of thrill seeking. I loved publishing a book about Sam Bankman Freed that I knew was going to create a war.

Okay, okay, So I.

Love sort of like this feeling of this confederacy of Dunce's feeling where I love. It's harder to do it now in journalism because you get yourself in way too it just way too much trouble. But I love I used to love in the New Republic taking a hugely unpopular line and pushing it as far as you could, knowing it's unpopular, but because you thought it was right. But like like that kind of I gotta I get it. I get a charge out of that feeling, not not gratuitously.

That's very Riverian, that contrarian, not quite confrontational streak, but in difference toward in difference word mild amusement with creating a stir is very Riverian.

We'll be right back after a quick break. I'm back with Risky Business co host Nate Silver. So this is a strange question. But if you were to send me off to get myself into the worst expected value, the most negative expected value situation available in gambling markets, where would you send it?

I mean, the state lottery is the lowest player payout percentage in West Virginia. It's something like the government keeps eighty percent of the money. And of course, like a very it's a very poor play the lottery.

It would be for lottery, what comes then? What comes after that? Horse racing is generally horse racing is horse racing worse than betting parlays and with DraftKings. So the parlays aren't I mean, the parlors are weird because like the way they do the accounting gets slightly strange. But yeah, horse racing they take like was it like fifteen or

Uh, if you're a skilled better.

Right, if you're if you're an unskilled better, I mean the shorthand version of it. If you're skilled better, you're not allowed to bet at DraftKings. Yeah.

One of the things the sports betting houses I talk to you would tell you is that, like, actually most betters.

Are worse than average.

Right, If you just threw darts and a dartboard at NFL pointsprints are something you'd lose four and a half percent, but most players lose like five percent instead, right, show he so tanies, degenerate gambling interpreter friend like have these horribly large losses partly because, uh, partly because he had these parlays and the way they're accounted for, but also because like, what.

So, why do you think it's interesting about sports betting? You're making a point that's that to me is interesting is that here you've got this activity where you could have an edge, like blackjack, but unlike blackjack, you have people who are especially it tends to attract a lot of especially dumb bets. So what is it about sports that does this?

I think it's partly because sports betting like a lot of fields in the river, but like, it's partly about men and men's egos, especially men's egos around sports and the advantalin and the and the buddy stuff that causes a little bit. So one problem with like draft kings, like not allowing sharp players. As part of the allure of sports betting should be that hey, look, hey, buddy, you're pretty smart about sports. Why don't you try to outsmart the system?

Right?

And now they're very careful about not quite implying that. They say, well, we all have hunches. Sometimes it's fun to better hunches. I heard ad recently on some podcasts I was listening to, But it's not the same as like the Daily Fantasy Days where they're like, hey, man, you're sitting in your office.

Cubicle, but you really know sports really well, so.

Why don't you boot up some draft kings lineups and then you'll be hanging out with like bikini models or like literally what the ads were saying.

It wasn't even the subtext.

It was like text, and now they've lost that because they're afraid of like, for every person who can beat the system, there have to be ten egotistical guys who think they can beat it and can't.

Right, and when they sift the population and have the ability to sift the population so that and are able to kick out anybody who can beat the system and just keep in the system the people who were the ten guys. What I think is bound to happen is this activity is going to be stigmatized as stupid. If

Well, it's like what so like credit rating agencies will look for people who whose phone batteries go out a lot, because this is seen as a sign of poor planning, right, that you're not a long term planner if you routinely more than once or twice a month, right, can't make it through the day.

With your cell phone on the whole day? Yeah?

Absolutely, I mean, yep, people need to understand. And this is where like having spent time in on Wall Street, you probably understand adverse selection a little bit more. If if Sound's offering you a tree, why are they offering you this trade? And if you know that if they think you're sharp, you won't get this trade, then then that should be a big red flag. However, you you do, I guess kind of get this reverse adverse selection problem where you know, why is someone betting with you if

But like, but it's it's not a it's not a very robust industry.

They have good product and good marketing and good customer acquisition,

But but it is, but but it is.

It is about letting information into a market and using the information rather than just trying to keep the information out.

Yeah, and they take their four and a half percent tax and get like a lot of dumb betters and and you know, I don't know, maybe they should have a higher vague and but say we'll take everybody's bet and have a higher vegue and said what happens is like you know, some of these sites like Circa actually let everyone bet and have better odds instead, and there and there have been these sites said it are very committed to a a fair experience for the gambler where

Unfortunately, hold that thought. We'll be right back. Nate Silver and I are back to discuss all things risky. I have a couple of other questions for you. One is, I'm going to Vegas this weekend give a talk. If I wanted to see Nate Silver's Vegas? Where would I go? Where your What are the places that make your socks go up and down?

I mean, the wind uh and the Aria are probably my favorite properties in Las Vegas.

And you walk it, you walk it, you walk in, and you go right to the poker tables in Vegas.

I basically, uh, play poker and eat nice food. Yeah, and that's really what I do, right. I mean, maybe I'll maybe I'll hit hopefully you hit the gym in the morning some of the time. Maybe you hit the pool once. You know, once a year, I'll get dragged out to the club. It's about the It's about the tolerance I have for that experience.

Once a year, it's fine. More than that, it gets old.

On top of that, I will almost ever be able to completely put away my real life work. Right, So I'll like get up at eight, take a call with some consulting client, write a new layer post at ten, and then play poker for twelve hours. And they're like very and they're very long days. You come home just exhausted.

Some of the time.

When you go into these tournaments. Are you nervous?

It comes and goes. I mean one of the things where it's interesting.

It's also true with like doing like live public appearances where you're in front of a bunch of people, like you were talking about earlier, you know, trying to figure out kind of where those butterflies come from and why sometimes you have them and why sometimes you don't. I'm trying to, you know, you gratually learn a few things, like doing things on an empty stomach is probably a bad idea because your heart rate is going up and

And then you play and there's no.

Interesting hands for for three hours, and it becomes like a little bit of a letdown because the big moments in poker come unexpectedly. They come toward the end of tournaments, not toward the beginning, and so it can be kind of kind of quite a grind. Now a big high sticks cash game, then immediately you're feeling the adrenaline. But I try to like enjoy that feeling.

What's the most you've ever won and lost in.

A cash game?

The most I've won is probably seventy seventy five K, and the most I've lost is probably forty five K or something. In a turn of the top cars I've had is like one fifty or one seventy or something. Okay, So yeah, I yeah, yeah, that feels fun, man, the feeling where you have a big winning cash session, because I like, I'm started to like cash poker better than tournaments where you have, like where you have a fixed player pool, because that's what you were talking about before

Sometimes is enjoyable.

It's a it's a it's a really useful window into character watching someone gamble. Uh that that that was the fun to me was seeing that you could It was just like they become characters in a novel when they're sitting around a poker table. There's something very distinctive about the way people it's like a fingerprint or the way they approach risk.

Yeah, I know you're still in the process of writing this, but how has your approach to what's changed? And making the new season and learning more about about the sports betting world.

So I'm not sure my own approach to risk is changing it all. However, one of the shocking things to me as I dive into the world sports betting is how these companies have sprung up and become multi billion dollar companies on the back of just dumb sports betting, Like like, we have a machine in place that's out there to maximize the number of stupid sports bets that people that Americans will make, and Americans are just shockingly

No just a notion that like they are explicitly saying that you can't have winning players and that we're expecting you to lose money. I mean even the casino industry offers some pretense of, oh, we're an entertainment product and you'll come and get a nice take dinner and see a show and hang out with your buddies, right whereas is this is just more cynical and.

It's an explicit It's just it's an explicitly dumb transaction without a whole lot of side benefits. There are some, I get it. It makes you it's more exciting to watch the games if you have money on it, et cetera, et cetera, But it is it is really just targeting bad decision making. And and it hasn't the fine point

I see some perceptual shifts. I mean, you see kind of in the political circles I follow. You see people who are growing more concerned as there are more studies that come out about the effect on young men. Look, it's a lot like the guy who goes and bets fifty dollars in the Yankees at the Yankees game and is giving away if he's making just like a moneyline bet expected value of two and a half bucks. Like, I'm not worried about him. He probably gets his two

Yet one of the things that runs through our whole season is how people's behavior changes and the decision making changes when you remove the friction. It's not a trivial thing. It's not that you make it a little bit harder for people to do things that are self destructive, and they're a lot less likely to do them. All right, Nate, thanks for doing this absolutely.

I'll talk to you soon, Michael, all right, bye bye.

Nate Silver is the author of the book On the Edge and co host of the Pushkin podcast Risky Business. Against the Rules is written and hosted by me Michael Lewis and produced by Lydia gene Kott, Catherine Gerardeau, and Ariella Markowitz. Our editor is Julia Barton. Our engineer is Sarah Bruguier. Against the Rules is a production of Pushkin Industries. To find more Pushkin podcasts, listen on the iHeartRadio app,