University of Bath

Rational Betting and Corrupt Bookmaking

This seminar is presented by Dr Bibhas Saha from Durham University

18 Oct 20174.15pm
18 Oct 20175.45pm

Where sport gambling is illegal, underground betting may involve bookmakers secretly engaging in match-fixing to defraud the ‘unsuspecting’ bettors. Such corruption pays off in many instances, as previous studies show, if the bettors are at most partially ‘rational’, if not completely naïve. In this seminar Professor Saha will ask: If the bettors are perfectly rational, can the bookmaker still engage in match-fixing? Professor Saha will consider fixed odds betting for a two-team contest, where a monopolist bookmaker may randomly access a corrupt team and compromise the probability of that team’s win. Subsequently, the bookmaker posts betting odds and the bettors place their bets. Bettors are fully rational, in the sense that they update their beliefs using all available information. Professor Saha will show that there is a (semi-separating) perfect Bayesian equilibrium where rational bettors would place their bets knowing fully well the team they think favourite might have been bribed. But the bettors have different beliefs about which team is the favourite. The bookmaker creates confusion and plays on the bettors’ rational but heterogeneous beliefs. However, for the equilibrium to work the bookmaker must not deviate ex post, which can be ensured through a third party commitment. The corrupt players can act as the third party and bribes can be made price-contingent, so that any profit gains from ex post deviation would have to be secretly transferred to the players in the form of extra bribes.