Thoughts on Business and Technology

Pari-mutuel System

Wikipedia defines Pari-mutuel system as

A betting (from the French: Pari Mutuel or mutual betting) is a betting system in which all bets of a particular type are placed together in a pool; taxes and the “house-take” or “vig” are removed, and payoff odds are calculated by sharing the pool among all winning bets.

Pari-mutuel system has its roots in horse race. Unlike Casino or a lottery system which are fixed-odds betting, in horse racing you are betting against other bettors. The house takes a flat percentage ( say 17% ) of the total amount wagered.

Wikipedia defines Fixed cost betting as

Fixed-odds betting is a form of wagering against odds offered by a bookmaker, an individual, or on a bet exchange.It is customary with fixed-odds gambling to know the odds at the time of the placement of the wager (the “live price”)

According to Charlie Munger

Investing in stock market is the equivalent of going out and betting against the pari-mutuel system. We look for the house with one chance in two of winning which pays you three to one. You’re looking for a mis-priced gamble. That’s what investing is. You have to know enough to know whether the gamble is mis-priced. That’s value investing.

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