system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: How are betting odds calculated?

Is it genuine insider knowledge from the betting companies, a fancy algorithm or something else?
gpt
1: From historical trends and past performance, take the population of contenders and figure out the likeliest performance of each against the other. This is easy in a sports team oriented game or boxing match where there's a published record and only two contending teams/players. It's more complex when you have a field of racing horses.

2: Convert the results into a percentage. So for horse X, it 20% chance they'll take the prize; for horse Y, it's a long shot that's likely a 2% chance. Divide each number into one. 1 divided by 20% = 5, so the odds on that horse are "5 to 1" if a perfect payout is desired. And it would be 50 to 1 for horse Y.

3: Now mark up your payout so you are going to earn something out of it. Instead of paying 5 to 1, you make your payout 3 to 1, meaning if that horse wins you keep 40% of the overall bet pool. The more illegitimate your betting business, the greater the markup you'll put on it.

4: Next, for each contender, estimate how many people are going to bet on it compared to the others. In a race where one horse is clearly clearly superior, most people will bet on that one. So adjust the winnings on that one way, way down (1.2 to one, for example) to encourage people not to bet on that sure thing.

5: Finally, if you can, repeat 4 by analyzing how many people are betting on each horse or team as the bets come in. Almost everyone is betting on horse #3? Cut its odds from 4 to 1 down to 3 to 1. (This is why bet payouts shift at racetracks).