Newmarket Ritz Club July Festival

This Wednesday afternoon, our rag-tag group of carleton economists would take on the high class world of thoroughbred horse racing, in hopes of making a few pounds, or perhaps just to quietly mock the people wearing funny hats.  Actually, aside from the fact that it was a great cultural experience, there was a class related exercise involved.  

        To better understand how exchange markets work, and to illustrate the difference between spot rates, forwards, etc. each student was given 10 pounds that they were to use to bet on the races.  You first had to decide what kind of risk you wanted to undertake.  Should you take the favorite with 3-1 odds, the long-shot with 200-1 odds, or maybe somewhere in the middle.  Do you bet to win? To place? Maybe hedge your win bet by going "each way"? And do you bet with Tote, the primary booking company which utilizes a pot-sharing mechanism where the odds for each horse adjust depending on  how many people place bets on it and then the odds you receive are the final odds before the race starts (we'll call this the spot rate), or do you bet with one of the smaller bookmakers where you lock in the odds at the time of the bet (we'll call this the forward rate)?          

        All of these factors led to quite an interesting afternoon, where over seven races, our betting strategies (or maybe just luck) improved dramatically as the day went on, yet the greatest lesson that we came to learn was that really, unless you are "in the know", horse racing is pretty much a complete crap shoot.  That being said, a day at the races is highly recommended to anyone should you ever get the opportunity.