The Betting Markets Speak Geometrically


At the moment, the Tradesports betting market overwhelmingly predicts that Paris will be the host city for the 2012 Olympics, with a 75% chance of winning.

More interestingly to me, however, is the sequence of numbers you see if you read down the list of candidate cities: * Paris: 74.5 - 75.0 * London: 13.3 - 16.5 * New York: 5.3 - 6.4 * Madrid: 1.2 - 3.3 * Moscow: 0.3 - 2.1 The first set of numbers is the “bid” price — the price the market is willing to pay for a chance to win $1 if the specified city wins. The second set are the “ask” price — the price at which the market is willing to sell you that $1 chance. Of course, “the market” here is just the aggregation of the individual members bidding on these bets.

If you look at the numbers in the “bid” column, they’re pretty close to a geometric series in which each successive term is 1/5 of the previous one. (This nice relationship is all shot to hell in the next column, in which the ratios range from 5:1 to 3:2, and decrease monotonically.)

Does this mean anything? It’s not a power law (since the falloff is exponential, rather than polynomial), which kills my favorite explanation that everything is a power law. Is this just a meaningless coincidence, or is there a reason we’d expect to see a geometric series?