Who is taking the Chargers to win?

UPDATE: The Patriots won. I guess my black swan went south for the winter.


One of my new years resolutions this year was to try to figure out ways to take advantage of black swans. A black swan is "a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations" that is described in The Black Swan by Nassim Nicholas Taleb (which an interesting read and well worth the time).

One of the premises behind the black swans theory is that people under-estimate the real chances of rare events occuring - they think tomorrow is going to be pretty much like today. In financial markets, this means that the price of wildly out of the money options should be low relative to the rewards.

I was doing an experiment on this in the area of sports betting in an option format last week by observing the price of betting on the underdog in the NFL playoffs this past weekend. Turns out, you would have been able to make a bunch of money by betting heavily on the underdogs. So, is the lesson that I should go for the underdogs this weekend?

At the price right now, you would bet $13 to win $87 $100 if you pick the underdog Chargers to win. I don't know, but that price seems about right. I'm going to sit this one out, but it seems to me if you had the guts and the capital, that wouldn't be a bad bet.