Modern and post-modern portfolio theory as applied to moneyline betting

Abstract

Abstract Modern and post-modern portfolio theory were devised by Harry Markowitz (among others) for purposes of allocating some monetary resources among a number of financial assets so as to strike a suitable balance between risk and expected return. The problem it addresses bears a considerable resemblance to one encountered in making “moneyline” bets on the outcomes of contests in sports like American football. In distributing some allotted funds among a number of such bets, it may be desired to account for the risk. By introducing suitable modifications, the procedures employed in modern and post-modern portfolio theory for the allocation of resources among financial assets can be adapted for use in the distribution of funds among multiple bets. As in the case of financial assets, the most appropriate measures of risk are ones like the semi-deviation or semi-variance that penalize only negative or below-target returns. The various procedures are illustrated and compared by applying them retrospectively to moneyline bets on the outcomes of the college football “bowl” games from the 2020 season.