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$50 on the footpath?

September 10th, 2007

Quite a few people have pointed out that, while the betting markets have now caught up with the opinion polls in making Labor hot favorites to win the election, seat by seat markets while shortening suggest a very tight outcome. The question that doesn’t seem to have been asked (not aloud at any rate) is whether there is (or was) an arbitrage opportunity here. That is, if you backed the Liberals to win the election, while backing Labor in all the marginal seats needed to win, could you make a “Dutch book” against the bookies and guarantee a net gain no matter what happened (within reason – you would still lose if Labor got in by winning lots of supposedly ultra-safe seats while losing in the marginals).

Looking at the movements in seat prices, I suspect this was a real possibility not long ago, and that alert punters have exploited it, closing the gap. But this is definitely a case for Andrew Leigh.

Update As you might expect, I’m not the first to have asked this question. Here’s John Barrdear asking and Simon Jackman answering (a bit obscurely – I think he’s assuming a uniform swing, but I’m not sure). I’m still keen to discover Andrew’s thoughts on all this.

Immediate further update No need to worry. They’ve stopped taking bets

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  1. Sinclair Davidson
    September 10th, 2007 at 19:50 | #1

    Simon Jackman has set up an arbitrage page that looks at this very question.

  2. September 11th, 2007 at 21:04 | #2

    I accept that I’m a nobody on the Australian blogging scene, but I asked back in August!

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