An interesting observation on the wisdom of crowds for me is para-mutual horse track betting. The odds given for each horse, which determine the payout for a be

An interesting observation on the wisdom of crowds for me is para-mutual horse track betting. The odds given for each horse, which determine the payout for a bet are determined by how many people make that bet. Very roughly, in para-mutual betting (the most common kind) there is a single pool of money bet on a race. If 200 people have placed the same bet on a horse that wins, the pool is divided amongst the 200 (less the say 10% held back as profits for the track) . My initial thoughts were that there must be some inefficiency in the odds as people either avoid or engage in betting at certain posted payout ratios. To my surprise, it appears that the actual odds reflect the actual probabilities that the horses will win. Somehow, the crowd at the track is able to bet on race after race and correctly, as a group, determine the probability of winning for all of the horses running. At least they predict it well enough that given the vig (slang for the percent held back by the track) there is no simple mathematical strategy that works to achieve winnings above chance. I'm not a gambler, but I have read a few academic papers on race-track betting[1]. It surprised me that the odds (which determine the payout on a bet--horses with high odds pay out more while being believed to have more remote chances of winning) so accurately predict the chances of a horse winning that there is no simple mathematical strategy that is worth pursuing. [1] This was back around 1975 so there is likely to be much more research available now. I remember one paper published in an operations research journal around that year that covered harness racing, but I can't seem to find it now.