Have those in the know already written off the Waratahs in 2015?

It was in 1906 that scientist and polymath Francis Galton made his discovery of what is known as the wisdom of crowds.

He attended a farmers’ fair in Plymouth where he was intrigued by a weight guessing contest. The goal was to guess the weight of an ox when it was butchered and dressed.

Around 800 people entered the contest and wrote their guesses on tickets. The person who guessed closest to the butchered weight of the ox won a prize.

After the contest Galton took the tickets and ran a statistical analysis. He discovered that the average guess of all the entrants was remarkably close to the actual weight of the butchered ox. In fact it was under by only 1lb for an ox that weighed 1,198 lbs.

This collective guess was not only better than the actual winner of the contest, but also better than the guesses made by cattle experts at the fair. It seemed that democracy of thought could produce amazing results.

However, to benefit from the wisdom of crowds several conditions had to be in place. First each individual member of the crowd must have their own independent source of information. Second they must make individual decisions and not be swayed by the decisions of those around them. And third, there must be a mechanism in place that can collate these diverse opinions.

If we accept that Galton’s premise is true, then we can assume that a betting market might give us some useful indicators as to who might eventually win the Super Rugby competition – or perhaps more pertinently, who will not.

I perused the odds on offer from punters this afternoon on one of the major betting exchanges, specifically the odds across the Super Rugby competition on who would win the final. This was not because I am any sort of gambler, but because I happen to think that Galton’s crowd is often right. Also because betting exchanges meet the criteria for the wisdom of crowds to function correctly.

To the first condition, the sources of pre-punt information are certainly diverse – punters will read different newspapers, source different online updates, use different apps, support different teams, and talk to different groups of peers and friends.

Second, punters usually make individual decisions, in fact most punt in private and rarely share their pending bets with anyone (until they win at least!).

Third, the betting site itself acts as a mechanism for collating diverse opinions from across the globe.

So what we have is a ready-made gauge on the wisdom of crowds as it pertains to Super Rugby. (Remember a betting exchange is essentially punters betting against each other, not a bookmaker offering odds to punters. And yes, yes, I know bookies use exchanges too).

Now, this particular exchange offers an unusual additional function. In addition to the “back” bet, it also offers a “lay” bet. Understanding the lay bet made my head hurt in the beginning, so I’ll try to dumb it down for all of us.

Whereas the “back” bet is you saying to another person, I will back this team to win the tournament….the “lay” bet is you saying I will back this team to lose the tournament. You can bet on a team to “not win”.

The odds offered on the “back” bet on an exchange are very similar to the odds offered by the corporate bookmakers on the various teams. The “lay” side, however, is where we can see the wisdom of the crowd.

Another way of putting it might be to say, on the “back” bet I am acting as a punter. On the “lay” bet I become the bookie. I’m offering odds, and if I lose, I lose big. A lay bet is a downside bet, so I’ll only take it if I really think it will come off.

A lay bet is not a speccie where I might get lucky. On a back bet I get lucky. On a lay bet, I get unlucky.

Lets use the Waratahs as our example – because when I logged onto the site it was the Waratahs numbers that made my jaw drop.

Right now, I can back the Waratahs to win the Super Rugby final at $5.50, which means that if I put $100 on them to win the final and they do, I win $550. If they don’t, I lose 100 bucks.

On the flipside, if I want to back them to lose, or “lay” them, I have to give odds to another punter on the exchange of $20.00. This means if I’m right and they don’t win, I will receive $100. If I’m wrong though, and they win the comp, I will be required to pay out $2000 to whomever accepted my bet. Ouch.

If you think this seems like a pretty big risk, you’re right. But that’s not really the point. The point is that to get anyone to take my bet on the Waratahs not winning the comp, I have to give incredible odds to get them to take that bet. Why? Because generally speaking no-one in the crowd thinks they can win. Already last year’s champions have been all but abandoned by the crowd.

To give you a sense of how this plays out across the ladder, there are seven teams who can’t get a lay bet at all, let’s call them The Unbackables – they are the Lions, Cheetahs, Rebels, Force, Blues, Reds and Bulls. Basically,this is the crowd saying “These teams are so certain to not win the comp that I’m not going to bother trying to find someone who will bet me that they can”.

For teams that actually get lay odds offered – a useful indicator of how favoured or unfavoured they are is the size of the differential between their back odds and lay odds. This is volatility.

So lets start with the next worst, the Sharks, who are almost as badly off as the Unbackables – their back odds being $18.50 to win and their lay odds being $40.00, for a differential of $21.50. In other words, to get the crowd interested in betting against the Sharks not winning, I have to offer twice the odds. The crowd doesn’t want to bet against the Sharks not winning – they think it is almost certain that they won’t.

Huge odds + huge differential = huge chance of the Sharks being at home watching the final on Super Sport.

The Waratahs are next to be deserted, the differential between their back odds and lay odds being $14.50. They have the dubious honour of being best of the worst – out of all the teams the crowd thinks can’t win the competition, they think the Tahs can’t win the least, but they are still lumping them in with the has-beens and gone-for-the-years.

There is a massive division between this bottom-of-the-differential-table group, and the rest – the gap is 9.5 points.

After that patch of daylight we get to the serious players…or at least those who the crowd thinks are the players. First are the Stormers, with a differential of just 5 – a huge gap from the Waratahs. The Highlanders are next with a differential of 4.5. Clearly the crowd believes that these two teams are roughies who are in with a chance.

The final four teams – Chiefs, Crusaders, Brumbies, Hurricanes – all have win odds under 7 and differentials of less than 1. The low differential tells us that the backers and the layers generally agree on the prices, further evidence of the wisdom of the crowd at work.

That’s a lot of numbers, so what to take out of it? Well firstly, remember that we’re not really interested in the odds for betting purposes. We’re interested in what the crowd says about their team’s chances. A betting exchange is simply a convenient place to gather the wisdom of the crowd.

A few conclusions offer themselves. First, if the Brumbies and Stormers top their conferences, then according to the crowd, the Stormers, Highlanders, Chiefs, Crusaders, Hurricanes and Brumbies will be the top six.

Next, the crowd is strongly suggesting that they are seeing something in the Waratahs’ play that they do not like at all. If not, why would the Crusaders be so much more favoured by the crowd, when they are actually a point behind the Waratahs on the table, with the same two and two record?

Finally, there’s always room for gut feel and I think the Bulls are a better proposition than we have given them credit for. At two and two the same as the Waratahs and Sharks, and with a game in hand and two home games coming up, their position could change rapidly.

The crowd might be right about oxen, but I’m not convinced they’re right about the Bulls.