System and method for permutation betting

Abstract

An improved system and method is provided for permutation betting. To do so, a permutation betting engine may be provided for providing services to support betting on an outcome resulting in an ordinal ranking of objects. Orders specifying a property of an ordering of one or more positions of an object in an ordinal ranking of objects may be received. The quantities for orders to accept may be determined, a response may be sent to traders indicating the quantities of orders for payment, and the amount owed for accepted orders may be collected. Winning accepted orders may be identified and payout may be made for winning accepted orders. Advantageously, the present invention may provide a framework for efficiently optimizing an auctioneer's objective using linear programming for a prediction market where the outcomes of interested events are ordered statistics.

Description

FIELD OF THE INVENTION[0001]The invention relates generally to computer systems, and more particularly to an improved system and method for permutation betting.BACKGROUND OF THE INVENTION[0002]In a permutation betting scenario, traders may wager on the final ordering of several competing candidates: for example, the outcome of a horse race. In a typical horse race, traders may bet on properties of the outcome like “horse A will win”, “horse A will show, or finish in either first or second place”, or “horses A and B will finish in first and second place, respectively”. In practice at the racetrack, each of these different types of bets are processed in separate pools or groups. In other words, all the “win” bets are processed together, and all the “show” bets are processed together, but the bets specifying different properties of the outcome are not processed together in the same pool. This separation can hurt liquidity and information aggregation. For example, even though horse A is...

AI Technical Summary

Benefits of technology

[0007]Briefly, the present invention may provide a system and method for permutation betting. To do so, a permutation betting engine may be provided for providing services to support betting on an outcome resulting in an ordinal ranking of objects. In an embodiment, a permutation betting engine may include an operably coupled model generator for creating a linear programming model used to determine quantities of orders to accept. The permutation betting engine may also include a linear programming analysis engine operably coupled to the model generator in an embodiment for determining a set of quantities of orders to accept. In various embodiments, the permutation betting engine may determine an optimal set of quantities of orders to accept for achieving an auctioneer's objective, such as maximizing a worst-case profit of an auctioneer.

[0008]The present invention may provide a framework for efficiently optimizing an auctioneer's objective for a prediction market where the outcomes of interested events are ordered statistics. To do so, orders specifying a property of an ordering of one or more positions of an object in an ordinal ranking of objects may be received. The quantities for orders to accept may be determined, a response may be sent to traders indicating the quantities of orders for payment, and the amount owed for accepted orders may be collected. Winning accepted orders may be identified and payout may be made for winning accepted orders.

[0009]In an embodiment, a partial quantity of an order may be accepted and linear programming may be applied for determining an optimal set of one or more quantities of orders received and a response may be sent to traders indicating the quantities of orders accepted. In various embodiments, an auctioneer's objective may be optimized in determining the quantity of orders to accept. For example, an auctioneer's objectives may include maximizing the total trading volume in the market or maximizing the worst-case profit of the auctioneer. In another embodiment, a subset of orders may be found that provide a nonnegative profit to an auctioneer for possible outcomes of the ordering in the ordinal ranking.

Problems solved by technology

This separation can hurt liquidity and information aggregation.

For example, even though horse A is heavily favored to win, that may not directly boost the horse's odds to show.

Furthermore, existing horse-betting mechanisms restrict what participants can bet on.

Unfortunately, the more restrictive the betting mechanism may be for placing wagers, the less refined the information may be that the market can possibly aggregate.

However, supporting bidders to explicitly list the orderings that they would like to bet on may be both unnatural and intractable, because the number of orderings is n!, which is the number of rank order permutations of the n competing objects.

Although full expressiveness allows participants to bet on any of the n! number of orderings, full expressiveness for permutation betting can be computationally costly.

Thus, there may be a tradeoff between expressiveness, computational cost, and liquidity for prediction markets.

However, expressiveness is often accompanied by high computational cost and less of liquidity, which prevents efficient information aggregation.

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