Bayesian analysis and sports betting

John Mark H. Villanueva

T05

The Encyclopedia Britannica defined the Bayesian analysis as a method of statistical

inference named for English mathematician Thomas Bayes that allows one to combine prior
information about a population parameter with evidence from information contained in a
sample to guide the statistical inference process. A prior probability distribution for a
parameter of interest is specified first. The evidence is then obtained and combined through
an application o Bayess theorem to provide a posterior probability distribution for the
parameter. The posterior distribution provides the basis for statistical inferences concerning
the parameter.
This method of statistical inference can be described mathematically as follows. If, at a
particular stage in an inquiry, a scientist assigns a probability distribution to the hypothesis H,
Pr(H)call this the prior probability of Hand assigns probabilities to the obtained evidence
E conditionally on the truth of H, PrH(E), and conditionally on the falsehood of H, PrH(E),
Bayess theorem gives a value for the probability of the hypothesis H conditionally on the
evidence E by the formula:
PrE(H) =Pr(H)PrH(E)/[Pr(H)PrH(E) + Pr(H)PrH(E)].
There are many varieties of Bayesian analysis. The fullest version of the Bayesian
paradigm casts statistical problems in the framework of decision making. It entails formulating
subjective prior probabilities to express pre-existing information, careful modeling of the data
structure, checking and allowing for uncertainty in model assumptions, formulating a set of
possible decisions and a utility function to express how the value of each alternative decision
is affected by the unknown model parameters. But each of these components can be omitted.
Many users of Bayesian methods do not employ genuine prior information, either because it
is insubstantial or because they are uncomfortable with subjectivity. The decision-theoretic
framework is also widely omitted, with many feeling that statistical inference should not really
be formulated as a decision. So there are varieties of Bayesian analysis and varieties of

Bayesian analysts. But the common strand that underlies this variation is the basic principle of
using Bayes' theorem and expressing uncertainty about unknown parameters probabilistically.
According to Kate Cowles, there are many reasons for adopting Bayesian methods,
and their applications appear in diverse fields. Many people advocate the Bayesian approach
because of its philosophical consistency. Various fundamental theorems show that if a person
wants to make consistent and sound decisions in the face of uncertainty especially in sports
betting, then the only way to do so is to use Bayesian methods. Others point to logical
problems with frequentest methods that do not arise in the Bayesian framework. On the other
hand, prior probabilities are intrinsically subjective - your prior information is different from
mine - and many statisticians see this as a fundamental drawback to Bayesian statistics.
It is noteworthy that advocates of the Bayesian approach argue that this is
inescapable, and that frequentest methods also entail subjective choices, but this has been a
basic source of contention between the `fundamentalist' supporters of the two statistical
paradigms for at least the last 50 years. In contrast, it is more the pragmatic advantages of
the Bayesian approach that have fueled its strong growth over the last 20 years, and are the
reason for its adoption in a rapidly growing variety of fields. Powerful computational tools
allow Bayesian methods to tackle large and complex statistical problems with relative ease,
where frequentest methods can only approximate or fail altogether. Bayesian modeling
methods provide natural ways for people in many disciplines to structure their data and
knowledge, and they yield direct and intuitive answers to the practitioner's questions.