Polls, pundits and punters yet again
It’s too late to influence anyone’s vote, and I doubt that many of my readers are in much doubt as to which way they will go, so I’ll return to one of my favorite topics, the relative predictive power of polls and betting markets. Most of the time, comparing the two is a tricky exercise, since the odds in betting markets and those implied by polls tend to converge as the election nears. Not this time, however. The polls have remained at or near 50-50 throughout the campaign, with the additional complication that 5-10 seats may be won by independents or minor parties. Yet, as of a couple of days ago, the LNP was paying $1.08 for a dollar bet, implying a winning probability of around 90 per cent.
In classical statistical terms, that means that, if the LNP loses (does not form a government) the null hypothesis that the betting odds are correct can be rejected with 90 per cent confidence, which is commonly considered good enough for social science work. Unfortunately, things don’t work the other way around. If we disregard markets, the chance of an LNP win is probably a bit above 50 per cent, so a win for the LNP wouldn’t prove anything one way or the other. For that, we’d need a case where the polls strongly predicted a winner, while the markets were even money or going the other way (the key concept here is the “power” of the test).
In an important sense, anything less than a clear LNP majority would constitute a rejection of the betting market hypothesis. If the majority is small, then the outcome will inevitably have been decided by a few thousand random votes reflecting unpredictable chance.
Anyway, we’ll see soon enough.