With a field of 64 teams and a “win-or-go-home” bracket tournament, the yearly March Madness NCAA basketball tournament provides a perfect case-study (and hopefully real-world) application of my idea to “bet favorites and chase losses.”
In order to win the tournament, a team must win 6 consecutive games. Put this in a time frame of under 3 weeks, and we have ourselves an encapsulated test market. It seems highly unlikely that an underdog will win six games in a row, and history has shown that. According to Basketball Reference, no team higher than #8 has ever made it to the championship game, let alone won it all. In fact, only one team ranked #12 has ever won 3 in a row and only once has a #11 ranked team made it to the “final four” (4 wins in a row).
Each team is placed into one of 4 sub-categories (South, East, West, MidWest). From there, they are ranked 1-16, for a total of 64 teams. That means there are four teams with a #1 seed, all the way through #16. In the first round, #1 plays #16, #2 plays #15, all the way to #8 vs. #9.
The idea is simple: Bet the higher ranked team in each game of round 1, and chase the losses into the next round. Historically, this has been profitable.
Long story short: If you have a bankroll large enough, you can profit from this. But how large of a bankroll do you need? Allow me to analyze past tournaments to calculate that for you...