Taste arbitrage

Myths and legends of the market The JC’s guide to the foundational mythology of the markets.™ →Go uptown A brand new, not very clear, dance, yesterday Index: Click ᐅ to expand: Mythology Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

The practice of going to an unfashionable neighborhood and buying something achingly a-la-mode at a knock-down price because the Philistines who live there don’t understand how valuable it is.

The foundation of credibility derivatives, used principally in the fashion industry, wherein end users can actually swap cashflows on underlying reference garments based on their relative evaluations between areas afflicted with contrasting aesthetics (cross-credibility swaps), or buy outright protection on ostensibly idiotic fashions which common sense tells you no one will be seen dead in, but fashion scribes assure you will be the rage for the next five summers, in the form of credibility default swaps.

International sports betting arbitrage

There is a variation of taste arbitrage to be played on international sports betting markets, particularly if one contestant represents Britain. The British public is famously, absurdly, delusionally optimistic about its national team’s prospects in any given sport. Thus it follows that the odds against Britain available from bookmakers in Britain should be disproportionately favourable to local pessimists.

Generally speaking, the converse should be equally true, in that the general public of nations competing against Britain will also be overly optimistic about their own team’s real prospects of success, given Britain's signally disappointing history in international sporting contests, regardless of code.

There is therefore — well, should be— an arbitrage to be had by placing offsetting bets against Britain in Britain and for Britain offshore. That is the theory.

Alas, bookmakers are wise to it: they lay off their local exposure in international markets and, in any case, the bid-ask spread drowns out the theoretical arbitrage.

Back to work Monday, I’m afraid.

See also

• Normal Arbitrage
• Credibility derivatives