The system was tested on data from Santa Anita and Exhibition Park using exact and approximate solutions (that make the system operational at the track given the limited time available for placing bets) and found to produce substantial positive profits. Side calculations generally reduce the number of possible bets in any one race to three or less hence the actual optimization is quite simple.
Since the amount bet influences the odds and theory suggests that to maximize long run growth a logarithmic utility function is appropriate the resulting model is a nonlinear program. Estimated theoretical probabilities of all possible finishes are compared with the actual amounts bet to determine profitable betting situations. This paper describes a technical system for place and show betting for which it appears to be possible to make substantial positive profits and thus to demonstrate market inefficiency in a weak form sense. Previous studies and our data confirm that for win bets these inefficiencies, which exist for underbet favorites and overbet longshots, are not sufficiently great to result in positive profits.
They attempt to find inefficiencies in the "market" and bet on such "overlays" when they have positive expected value. Technical systems require less information and only utilize current betting data. The investor then wagers on one or more horses whose probability of winning exceeds that determined by the odds by an amount sufficient to overcome the track take. Fundamental strategies utilize past data available from racing forms, special sources, etc. Since the track is a market similar in many ways to the stock market one would expect that the basic strategies would be either fundamental or technical in nature.