I was sorting through some old papers recently and I came across my undergraduate final year dissertation. I recall that it started as a project about genetic algorithms but quickly turned into a project that used neural networks to predict the outcome of horse races.
I trained a back propagation network and used the final network to predict the outcome of (selected) races that the network had not been trained on. One of the biggest challenges was finding suitable data. I was lucky enough that a couple of companies (Timeform and Raceform – thank you) sent me their databases which made the data collection side of things a lot easier than it might have been.
One item that was missing from both datasets were the starting prices. Due to this I could not really judge if the predictions would result in a profit. However I did a few calculations and assumed that the average odds were either 2/1 (3.00), evens (2.00) or 1/2 (1.50) (see note, for a description of the odds calculation). I also made an assumption that the odds would also capture any tax that had to be paid.
Using these figures it was possible to make a profit even when the average odds were as low as 1/2 (1.50).
I wonder if it really is possible to develop a prediction system that can make a profit from backing horses? Although my undergraduate dissertation suggested that it is, it would need a lot more development, testing and analysis.
I would also like to investigate other methodologies, in addition to neural networks – but that needs a little more thinking about.
Of course, it’s not possible to predict the result of every race but you only need to predict enough races, at good enough odds, to show a profit.
One of the issues when betting is the amount of tax you have to pay but with new methods of betting (such as spread betting and betting exchanges) becoming ever more popular, perhaps this might not be so much of an issue.
I know that betting exchanges (such as betfair) still charge a tax but at least you are betting against other punters and are not limited by the odds being offered by the bookmakers.
I’ll keep this one of the back burner for a while, but I think there is some potential in exploring it further.
Note on odds: I have shown the odds in two ways. The UK way of expressing odds is (for example) 2/1 which means you have to place a stake of 1 unit to win 2 units. You also receive back your stake. So if you bet 1 unit at odds of 2/1, and the horse wins you receive 3 units back (the 2 units you won + your 1 unit stake = 3 units; less any tax – but let’s ignore that for the purpose of this discussion).
Another way of expressing odds is the decimal format (which I have shown in brackets). This is used, for example, on betfair. This says how much you will receive for 1 unit, including getting your stake back. So if you bet 1 unit at odds of 3.00, and the horse wins, you get 3 units back.
So the two ways are just the same way of expressing the same thing, but you might be more used to seeing one system over another, depending on where you live/bet.