Why Pete Rose Didn't Fare Better in His Bets

by Colin Gustafson
Mon, 10 Mar 2008 at 10:17 AM

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Insider knowledge doesn't always bring a higher payoff — especially when inside experts try to cheat in a market full of other, well-informed participants.

That's the conclusion of a paper written by a Rutgers University economist, Douglas Coate, and posted yesterday on the Marginal Utility blog (http://atbozzo.blogspot.com).

Examining the baseball bets of a disgraced former Cincinnati Reds manager, Pete Rose, Mr. Coate found that Mr. Rose lost $47,200 on bad wagers on the performance of dozens of Major League Baseball teams in April-May 1987. More than $4,000 of those losses were from bad bets on his own team.

So how could this major league insider with nearly three decades of experience in baseball lose so much money to gamblers who had never played the sport professionally, and had no access to any of the league's players or coaches?

Mr. Coate suggests that Mr. Rose, even as a baseball insider, did not possess as significant an informational advantage as he might have thought. In fact, the famed athlete probably failed as a gambler because he was participating in an "informational-efficient market," where other gamblers knew as much as he did about teams' strengths and weaknesses.

Mr. Rose's expertise 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 leagues," the author writes.

That, or he was just unlucky: In some cases, Mr. Rose "was a better gambler when he didn't have access to information," the blogger behind Marginal Utility, Kenneth Houghton, writes.

Whatever the case, Mr. Rose's losses in the betting market provide a lesson for participants in the financial markets, Mr. Coates suggests. "The team sports betting markets provide another test of how well markets process information," the economist writes.

"Markets are efficient if the prices of the individual stock at any moment in time reflect all that is known by market participants."

MIDDLE CLASS MAKES OUT BETTER UNDER BUSH THAN CLINTON Senator Clinton has made a habit of excoriating President Bush for implementing tax cuts that, she says, benefit the rich and hurt the middle class.

But a University of Michigan professor, Mark Perry, contends (http://mjperry.blogspot.com) that the worst "middle class squeeze" in taxes of the last decade has come under tax rates imposed by President Clinton.

Citing a recent study by the research organization the Tax Foundation, Mr. Perry writes that federal income taxes actually fell at every income level under the Bush administration's tax breaks compared to the 1999 rates of the Clinton administration.

According to the data he cites, married taxpayers with $50,000 of household income saw the largest percentage decreases in taxes of any demographic in the country, paying 21% less under Mr. Bush than they did under Mr. Clinton.

For wealthy single taxpayers who make $125,000 a year, the tax rate decreased by a much smaller margin than for the middle class, declining 10% under Mr. Bush's cuts.

"In other words, some middle-class taxpayers received twice the tax cut on a percentage basis as some of the rich," Mr. Perry writes. "So much for the claim that 'the Bush Administration and Congressional policies are failing middle-class Americans.'"

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