What exactly do we mean by “Value”

It occurred to me after positing yesterday’s post regarding the Rugby League bet, that it may be useful to define what we mean by a value bet.

Value (or Expected Value aka EV)

This is speculating on an event where the odds signify a greater return than the expected probability of that event occurring. This is something that all punters should be looking for when placing a bet.

Example - Deal or No Deal

To break that definition down for you, let us take an example from the TV , "Deal or No Deal".

This exact show aired over a month ago and the scenario was as follows:

The contestant had dealt at £20,000. Noel Edmonds then played through the game as they normally do and when they got to the last two remaining boxes the “Banker” offered the contestant the “Bankers Gamble“.
The two boxes remaining were 50p and £100,000.

This meant that the contestant could risk his £20,000 to win £100,000 or go home with nothing (well, 50p!).
With two boxes, the gamble itself is an Evens chance (50% or 1 in 2). However, the Banker is offering the contestant 4/1 - I.e. risking £20,000 @ 4/1 = £100,000 total returns (which is usually a 20% chance or 1 in 5).

So, to summarise where we are now at, the contestant is getting 4/1 for an Evens bet.

Big value I‘m sure you will agree! But, why is it big value and what does this actually mean??

Expected Value

Let us say that the contestant, for hypothetical purposes, has the choice of this exact gamble ten consecutive times. If he deals ten out of ten times (takes the £20,000 he already has) then he would win £200,000 (or £20,000 per go on average).

However, if he were to gamble, he would win £100,000 five times and win nothing five times. Over ten goes he would win £500,000 (or £50,000 per go on average).
Now lets compare the two outcomes. By gambling he will average £50,000 per go and dealing will give him £20,000 per go.

I.e. £50,000 - £20,000 = +£30,000 difference.

Therefore, if we say that the contestant taking the money is +£0 EV (expected value), then the contestant’s EV for gambling in this scenario is +£30,000.

To summarise, over ten goes the contestant would have been £300,000 better off if he had gambled instead of taking the money, as he chose to do.

I understand you only get one go on Deal or No Deal!! So, I won’t hold it against this contestant that he passed up a huge +EV bet!

However, in our trading and betting world we have endless opportunities to extract value like this. That is why you should be looking out for opportunities like the rugby league value bet posted yesterday.
Furthermore, you must never be placing a bet if the odds are shorter than you feel they should be!