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If a player is a standard deviation worse, he benefits from 3:1 odds, both in reality and in the Elo points they exchange. Don't doubt that the math would be fairly cumbersome as it applied to individual pitcher-batter matchups, but now that you put it in these terms, I see what you're getting at with Elo ratings for batters and pitchers. Good stuff.
It never occurred to me to use the Elo system in "handicap" contests. By definition, in chess that 3:1 odds situation applies to a simple, fair, 50-50 game situation. Now you introduce the idea of a 70% game in favor of the pitcher -- similar to Pawn odds in chess -- I have no idea how you would adapt the system.
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I'm curious. Where did you become familiar with the Elo system?