Optimal Online Bookmaking for Binary Games

TL;DR

This paper introduces an optimal online bookmaking strategy for binary events that maximizes worst-case returns by dynamically adjusting payoffs, using a novel bi-balancing trees technique.

Contribution

It formalizes the optimal online bookmaking problem for binary outcomes and provides an exact solution with a new bi-balancing trees method.

Findings

Optimal strategy guarantees equal house loss for decisive sequences.

Bi-balancing trees ensure worst-case optimality.

Strategy maximizes bookmaker's return in adversarial settings.

Abstract

In online betting, the bookmaker can update the payoffs it offers on a particular event many times before the event takes place, and the updated payoffs may depend on the bets accumulated thus far. We study the problem of bookmaking with the goal of maximizing the return in the worst-case, with respect to the gamblers' behavior and the event's outcome. We formalize this problem as the \emph{Optimal Online Bookmaking game}, and provide the exact solution for the binary case. To this end, we develop the optimal bookmaking strategy, which relies on a new technique called bi-balancing trees, that assures that the house loss is the same for all \emph{decisive} betting sequences, where the gambler bets all its money on a single outcome in each round.