We all have a rough idea of what price we are willing to pay for a product or service – it just becomes an innate sixth sense.
From a new house or car to fish and chips by the seaside, the vast majority of us know when we’re getting a bargain, when the price is fair and when we are being ripped off, too.
But it’s amazing how many punters don’t know when they are getting good value or not with their bets, and the reason for that is that they don’t have an understanding of implied probability – a fairly straightforward calculation that lets you know whether you’re getting value or not.
What is Implied Probability?
In betting terms, the most useful application of implied probability is that it converts odds – be it fractional, decimal or American – into a percentage, and it’s this number that determines the likelihood of an event occurring.
We’ll have more examples later in this article, but let’s imagine for now that the bookmakers have Manchester City as an even money (or 2.00 in decimal terminology) chance to beat Liverpool. This translates as a 50% chance of them winning the game.
And your mission is to decide whether City have a better or worse probability than 50% of winning the contest – if you think it’s a higher than 50% chance, these would be value odds. If you think that it’s less than 50%, then the implied value is in the draw or backing Liverpool.
Once you get your head around the idea of implied probability, you’ll wonder how you ever had a bet without it.
How to Calculate Implied Probability
Okay, so here’s the fun part: doing the calculation for implied probability.
It becomes so much easier to work out when you use decimal, as opposed to fractional, odds, so consider switching your betting site/app to decimal in your settings.
If not, you can type ‘convert fractional odds into decimal’ into your preferred search engine.
So, let’s say we have a football game with the following decimal odds:
- Manchester City – 2.00
- Draw – 3.25
- Liverpool – 3.75
The calculation for converting decimal odds into probabilities is as follows:
(1/decimal odds) x 100
So let’s work through those examples again….
- Manchester City – (1/2.00) x 100 = 50%>/li>
- Draw – (1/3.25) x 100 = 31%
- Liverpool – (1/3.75) x 100 = 27%
You’ll notice that the percentages don’t add up to 100%… why? That’s to do with the bookmakers’ margin, which we’ll cover in the next section.
You can use the formula above to calculate the implied probability of any priced sporting event.
Here’s a horse race as another example:
| Horse | Odds | Implied Prob. |
|---|---|---|
| Acrion | 4.5 | 22.20% |
| Recon Mission | 6.5 | 15.40% |
| Saaheq | 7.5 | 13.30% |
| Pablo Del Pueblo | 8.5 | 11.80% |
| Han Solo Berger | 9.5 | 10.50% |
| Street Parade | 10 | 10% |
| Delegate This Lord | 11 | 9% |
| Nordic Glory | 13 | 7.70% |
| Manettino | 15 | 6.70% |
| Impeach | 30 | 3.30% |
| Total | – | 110% |
Understanding the Impact of the Bookies Margin
In both of the examples provided, you may have noticed that – unlike what our maths teachers at school taught us – the markets didn’t add up to 100%.
The number over the 100% mark is the bookmakers’ margin – that is, the over-round they apply to their odds in order to balance their books and walk away with either a profit or a managed loss, depending on whether the favourite wins or not.
A handy way to think about this is if we were betting on a coin toss: in theory, the odds for heads or tails should both be even money (2.00). But a bookie wouldn’t make a profit long term with this kind of thinking, and so they would probably offer something like 10/11 (1.91) for heads or tails… creating that all-important margin.
Now, you wouldn’t bet on heads or tails at 1.91, would you!? Not now that you know about implied probability, anyway, because you know each side of the coin has a 50% chance of landing… the implied probability of 1.91 odds is 52.4%, and so you could say your value on such a bet would be -2.4%. That’s not a recipe for betting success.
How to Use Implied Probability in Betting
Implied probability allows us to assign a percentage chance to an outcome using a fairly simple calculation, and often this is an excellent starting point for working out whether a set of odds are value or not.
Calculating these probabilities alone isn’t enough to turn you into a profitable punter, but for anyone that struggles to work out whether they are taking value prices or not, this is a very useful guide.
The skill, of course, is in deciding if Manchester have a greater or less than 50% chance of winning, or whether Acrion is a more or less likely winner than his 22.2% probability implies.
That bit, we’re afraid though, is completely down to you to decipher….