Was Pete Rose a Good Gambler?

Last week I wrote about C.E.O.'s who seemed to be using insider information to create their own tax breaks. Now here's a case where inside knowledge failed to payoff.

I recently happened upon this very short paper investigating Pete Rose's gambling record when betting on baseball. (The paper was written in 2002 but seems to be just now seeing the light of day.)

The background: In his 1989 report to baseball, John Dowd got his hands on a detailed month-long chronology of Rose's alleged bets made in the early part of the 1987 season. These included bets on the Reds -- the team Rose managed -- as well as other National League and American League teams.

Douglas Coate, an economist at Rutgers University, examined this data to find out if Rose had any advantage given his intimate knowledge of the Reds' players and baseball in general.

It turns out he didn't. Rose lost $4,200 betting on the Reds, $36,000 betting on other NL teams, and $7,000 betting on AL teams. Coate writes:

"Assuming these bets are Rose's, his expertise (24 years as a player, 4 years as a manager, major league leader in games played) was not an advantage when betting on his own team, on other teams in his league that he studied and competed against, or on teams in the other major league."

Coate argues that this is a sign of market efficiency in the baseball betting market: Rose's inside information either wasn't very good or was already known by the rest of the participants in the market.

But I'd argue that it's not as simple as that. A gambler who gets himself into debt trouble, as Rose did, doesn't have the self-control to make bets only when his information is likely to give him an edge.

As Rose described himself, he needed to bet in order to get a high. So for an addicted gambler like Rose, it would seem that he'd actually thrive on making less information-filled bets: the riskier the wager the greater the rush.

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