The Netherlands is turning orange very fast. In only a few days a serious case of World Cup fever will break out. And although the battle seems to be actually being played out between chain stores – who has the best Oranje offer – in fact there’s only one question to be answered. Which team will be going home with the world cup? There are several ways of predicting the winner, but the best way is to keep an eye on the betting markets, thinks professor of Sports Economics Ruud Koning.
Of course you can ask all kinds of experts who they think will be the winners, says Koning. ‘If you ask enough experts, there’ll always be someone who makes the right prediction.’ If you want to do a proper, convincing prediction, however, then even the best mathematical models of the FIFA World Rankings pale into insignificance alongside the speculations on the online betting market.
Koning: ‘The FIFA World Rankings indicate which country is currently the strongest. You’ll find a completely different ranking list on the betting market, though. Although the Netherlands is in the top four in FIFA’s list, we’re only about eighth on a betting site such as www.betfair.com . The expectations are that that’s where we actually belong.’
The major difference is in the ‘soft’ information, thinks Koning. ‘The FIFA rankings are created following a strict system. They rely on performance in friendly and qualification matches – on what’s happened in the past, in other words. The betting rankings are looking to the future. They take into account factors like the fact that Germany is currently suffering from a rash of injuries.’
There are two ways of betting on the outcome of the World Cup. In the traditional way, bookmakers offer fixed odds. Punters can then decide whether or not to place a bet. The second way is very similar to the stock market. Individuals can both sell and buy. ‘This creates an equilibrium price that can include new information immediately. The market is able to process new information very fast, unlike the FIFA rankings which are published only once a month.’
Koning’s research has revealed that markets on betting exchanges in particular have the greatest predictive value. ‘The best thing about this system is that people can also act on private information, for example Rafael van der Vaart’s neighbour noticing that the footballer has been limping for a while.’ Because such ‘soft’ information can also influence bets, the predictive value turns out to be significantly greater than in the usual mathematical models. The odds reflect the various teams’ chances of winning.
Despite the major predictive value of the betting market, the traditional mathematical models are also very valuable, in Koning’s opinion. ‘The advantage of models is that you can answer questions that betting systems can’t. One such question is whether the Netherlands has a good or a bad draw. You can calculate that with a model, as well as the importance of various economic variables. This gives us more and more insight into the market.’
Ruud Koning (1966) studied Econometrics at the University of Groningen. In 1995 he gained his PhD from the same university. Between 1994 and 1998 he was university lecturer at the department of Econometrics of VU University Amsterdam. He returned to Groningen in 1998, and became professor by special appointment in Sports Economics in 2004. His research concentrates mainly on sport, economics and statistics.
For further information, please contact Ruud Koning
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