Arbitrage lost

I’ve mentioned before that the fact that most bookies have Labor odds-on to win, while the Liberals are favoured in about half the individual seat markets (they were ahead in a majority until recently) seemed to create arbitrage opportunities. A nice piece by Tim Colebatch resolves the apparent paradox to my satisfaction at any rate.

The paradox is explained by the fact that of the 29 seats in which the odds are closest, the bookies have the Coalition as favourite in 23 and Labor in just six. The law of probabilities suggests that if Labor gets anything like the vote being recorded in the polls, it will win a lot more than six of those seats.

The only blemish in this explanation is that there’s no need to refer to the Labor vote in the polls. Given 29 seats that are nearly even-money, it’s reasonable to expect Labor to pick up at least 10, just on the basis of the betting odds.

Going to the more general question of prediction, 2007 has been a win for the polls in their contest with pundits and punters as to who provides the best prediction of election outcomes. Labor jumped to a winning lead in the polls as soon as Rudd replaced Beazley and has held that lead, with only marginal erosion ever since. The pundits and the betting markets have gradually come into line, but it’s hard to believe that they would have done so in the absence of the information provided by the polls.

Of course, it’s still possible that Howard will come back, as he has done in the past, but that will just prove all predictions wrong.

10 thoughts on “Arbitrage lost

  1. The tools for predicting who will win the election seem to range between those that treat that the probabilities for each electorate being completely independent:
    (such as here http://jackman.stanford.edu/oz/Aggregate2007/bettingmarkets/currentSeatHistogram.pdf, see also http://jackman.stanford.edu/oz/Aggregate2007/bettingmarkets/index.php)

    and those that treat the probabilities for each electorate as being highly dependent, such as the “pendulum”. Of course the reality will be somewhere in between.

  2. the ‘locking up’ of big majorities in city electorates has been the reliable tool of ruling classes for a long time. just one more aspect of the undemocratic nature of

    ‘adjective-democracies’.

    when i was young, the adjective was representative’, or ‘parliamentary’. continuing dis-education has pretty well elided the adjective, the fools, hypocrites, and cynics are all agreed that we are a democracy now.

    but we are not a democracy, not even close. here in oz i have twice seen lincoln’s brillant characterization of democracy quoted in smh as: “of the people, for the people”, with never an editorial mention that lincoln said “by the people” as well. no objecting letters were published, and i have come to understand that mine was very probably the only one written.

    this is dis-education by policy of the media, supported by what passes for an intelligentsia in oz. they are well disparaged as ‘chatterati’, a supine and leash-trained verbal fig-leaf on the management of this continental sheep station.

  3. Al,

    For someone who believes so passionately in democracy `by the people’, it strikes me as strange that you are more or less openly derisive of many of those people.

    I actually find I agree with a decent chunk of what you say when you talk about the limitations of our (so-called) democracy, but it’s quite off-putting when you lurch off into angry denunciation. While it is frustrating at what passes for democracy in this (and many other) countries, telling people they are supine idiots is perhaps not the best way forward.

  4. “2007 has been a win for the polls in their contest with pundits and punters as to who provides the best prediction of election outcomes”

    Somewhat premature, no?

  5. It’s not premature, because the pundits and punters have converged on the same prediction as that of the polls, namely a Labor win with high probability.

    As I said at the end of the post, it’s still possible that Howard will come back, as he has done in the past, but that will just prove all predictions wrong.

  6. On reflection, I withdraw the claim in #5. The polls give stronger support to the view that Labor will win than do either pundits or punters.

  7. Any vote that is written on a piece of paper is worthless.

    Worse, it wastes people’s time in reading and responding to it.

    Voting is done with your entire self, it is done always and the reason we have parties playing favorites and metooisms abound is because the people have become apathetic.

    We are no longer living in a democracy, and we have democracy to blame.

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