In this article, I seek to provide an intuitive understanding to the idea of odds.
(Disclaimer: I am not promoting gambling! But if you really choose to gamble, do it responsibly!)
I will be using the decimal odds system in this article. This is the odds system used by Singapore Pools (the only legal bookmaker in Singapore). ‘Decimal odds, also known as European odds, express the amount of money which will be returned to the punter on a 1 unit stake. For example, if Barcelona is favoured to win at 1.50, then a $100 bet will give you back $150 in total. ’ <http://www.online-betting.me.uk/articles/how-to-read-betting-odds.html> If Barcelona really wins the match, the punter will get back your $100 capital and enjoy a winning of $50. However, if Barcelona loses the match, the punter will lose the $100 capital.
1) How does the bookmaker come out with odds?
I am not sure. Most probably, the bookmaker uses some form of complicated statistical model.
2) What information can punter obtain from the odds provided by the bookmaker?
We can know about bookmaker’s view for that game. If the odds are lower as compared to other options (such North Korea winning that match), it means that the bookmaker thinks that Barcelona has a high chance of winning the match. However if Barcelona's odds are higher as compared to other options, it means that the bookmaker thinks that Barcelona has a lower chance of winning the match.
3) Should you place a bet for an option with higher or lower odds?
It is really up to you. For an option with higher odds, the chance of occurring is lower but the reward is higher. For an option with lower odds, the chance of occurring is higher but the reward is higher. It is risk-reward issue.
In the next article, I shall be using some simple probability ideas to discuss more interesting issues such as, when should you (a rational person) place bet for a game?
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