Polls vs punters: an explanation?

Nearly a month ago, I noticed that betting markets were giving long odds (3.5 to 1) against a Labor win in the (presumably) forthcoming election. That would be a good bet if you thought Labor had a better than 22 per cent (1/(1+3.5)) chance of winning. Given that the polls were pretty much tied, I thought those were good odds.

Since then, the polls have moved steadily in Labor’s favor to the point where their lead is just about statistically significant in a meta-analysis (add lots of independent samples and the margin of error declines). At the same time, the government has barely had a good news day. Their one big hit, the kerfuffle about 10-year projections of tobacco tax revenue (a bipartisan policy) blew up in their faces a few days later when Turnbull and Morrison couldn’t/wouldn’t state the cost of their company tax plan. It seems that they had the $50 billion number ready, but had hit on the clever plan of having the Treasury announce it today, just before Parliament is dissolved so that Labor couldn’t … I’m not sure what (cue underpants gnomes). As a result of all this, the pundits, who dismissed the idea of a Labor win as implausible until very recently, are now coming around to the idea

Yet despite all this, the odds are barely unchanged at 3.3 to 1. That’s good for anyone who gives Labor a 23 per cent chance. There are a few possible explanations of this

(a) The idea that betting markets are highly rational aggregators of information is wrong
(b) Those betting in these markets have inside information or else insights unavailable to the rest of us.
(c) The markets don’t really exist in any substantial form and are just a publicity stunt for the bookmakers. That’s the argument of this 2013 article by Michael West, whom I’ve usually found to be sensible and reliable.

35 thoughts on “Polls vs punters: an explanation?

  1. Interesting, and I’d like to read the West article, but I think you forgot the link.

  2. Hello,

    I write having covered many federal and state elections as journo over the last 30 years.
    It’s too simplistic to look at the national 2PP vote.
    Labor needs 21 seats to form govt, largely in Qld and NSW.
    You need to look at the individual seats and their margins, then considered factors such as the relative candidates, local issues etc.
    Mark Skulley

  3. Mark, I disagree that the ALP has to win seats largely in NSW and Qld. This has been true in some recent elections, but in this election the ALP could easily win a number of seats, maybe as much as ten, in WA, SA, and Tasmania. If they fail to win many seats in one state despite a national swing, the chances are they will make that up somewhere else.

    The last time a party won government with substantially less than 50% 2PP was John Howard in 1998 with 49% which was off the back of a larger majority than exists now. If the ALP got 51.0% 2PP this time around I would be amazed if they couldn’t get a majority or at least a minority with Adam Bandt’s and someone else’s support to form government.

  4. I’m plugging for option (a). I’ve never understood why anyone would think that betting markets are highly rational. If betting was a rational activity, casinos would go broke.

  5. The betting markets do have a disturbing habit of accuracy. But with a 75 day campaign, who knows

  6. I wouldn’t rule out c), but where that isn’t the case, these betting markets as rather thin markets that are inefficient aggregators of individuals perceptions of what public opinion. These perceptions of public opinions are likely most influenced by polling and media commentary on the election campaigning. And these days media comments tends to be conservative biases and slow to acknowledge shifts in favour of progressive politics. (Now is case in point. Why is Turnbull still favoured to win by many when he is even to behind (or even) in the polls and is spruiking the more unpopular policy options on nearly every front.)

    So the betting market sentiment lags behind shifts in polling and media commentary. In other words I don’t believe betting markets have the good (or superior) predictive powers that have been claimed for them. To the extent they have been accurate in the past, they probably followed the polling, as long as the polling different shift much or very fast in the period immediately before the election. (And if the betting markets were b)reliant on insider knowledge, then they presumably would be very thin indeed.)

  7. Maybe those with deep pockets are manipulating the markets. I for one might take advantage of their generosity.

  8. Put me down for a, b & c! The challenge is working out their weightings. Although for anyone with actual (as opposed to the more usual delusional) skill or inside information, you can be sure they would find it very difficult to get any serious money on at favourable odds.

    It may be instructive that 40% of the money on “next Labour leader” is on Kevin Rudd at 100/1.
    And that it is reported that 20% of the money is on the Greens at 250/1 which indicates the triumph of hope over expectation.

    Those bookmakers also give “free” money to lure in new punters and those political markets are probably best understood as part of their marketing push.

  9. If political betting markets were working properly, you would expect to find a systematic bias in favour of left-wing parties or candidates, as rich folks lay off the risk of higher taxes. Has anybody seen this?

  10. The bookies are offering odds on what will happen when the election is held. The opinion polls ask how you would vote if an election was held tomorrow. These are different things. I’d say the bookies are assuming that the media gets behind the Libs near the election and influences the result.

  11. The very smart Possum Comitatus looked at betting markets a few years back. His conclusion was that any accuracy they had came from following the polls. In short, there was no new information there.

  12. For a start, betting on elections should be illegal, IMO.

    Also, “(b) Those betting in these markets have inside information or else insights unavailable to the rest of us”, is a disturbing possibility if there are forces attempting to rig or skew elections in Australia in some manner.

    It is clear (again IMO) that some recent (think Dubya Bush) presidential elections in the USA were rigged and stolen. It is also clear IMO that in the US and Australia plutocratic money skews available candidate choices, public discourse, general perceptions of possibilities and/or election outcomes by methods which might be nominally legal but are plainly morally corrupt and distorting of democracy. But gee, why worry about the suborning of democracy by capital so long as one can have a beer, a barbee and a bet?

  13. I agree with University of Queensland law professor Graeme Orr. I do not know anything of his other studies and views but on the issue of election betting I agree with him.


    “While he said he doesn’t believe betting on elections should be a criminal offence – to do so would make what he termed “friendly wagers” between friends on election outcomes a crime – there needed to be tighter and more uniform regulation to stop predatory agencies.

    “What I’m against is the industrialisation and the way this is part of the dumbing down process,” he said.

    “I would like to see it not licensed. Wind the clock back 15 years but it doesn’t have to be criminalised, it just doesn’t need to be licensed.

    “We have a highly regulated gambling industry, but when you have these slightly predatory agencies operating via the internet wanting to bet on all manner of things, that sort of thing if it creeps into the reporting of politics and is clearly degrading.”

    Though agencies don’t profit anywhere near as much from election campaigns as sporting matches and horse racing, Professor Orr said, the saturation coverage from betting agencies during a campaign gave them a foothold to a much higher profile.

    But in the process, he said, they are denigrating an important democratic process.”

    I agree.

  14. I must say I’ve been amazed how incompetent the Turnbull Government has been at managing the politics. The own goal with not releasing the costing of the 10 year plan of company tax reduction was extraordinary. And Morrison’s excuse for not doing it – that 10 year costings were not included in the Budget papers by Labor – was a blatant lie.
    I still think the Coalition is odds on to win, but they have made such a hash of the start of the campaign, I am not so sure anymore. And a hung parliament is now a real possibility.
    We live in interesting times.

  15. d. Those who bet on political odds are predominately, in the early stage at least, conservative and/or incumbents.

    What was the pattern of odds progression in previous elections?

  16. First a price of 3.25 as at present is actually about 30% or slightly less after the bookies margin. Second polls are snapshots and dong fully reflect real intentions until after the election is called. Third inside information is a myth except for leadership spills. The big commercial polls are the gold standard not internal party tracking polls which are less accurate day to day. Fourth with seat targeting governments usually can get back on about 48-49% of the 2pp. And so on. The betting markets are better than polls which in turn ate better than pundits.

  17. I am a newcomer to this topic. Please have patience.

    The problem I see is the following.

    1. In a ‘market’ the rule is one dollar one vote.
    2. In an election the rule is one citizen one vote.

    Unless the universe of actors in institutional enviroment 1. and 2. are idential in terms of numbers AND financial endowments, it is not possible to draw inferences about the preferences of voters for political actors from observing insitutional environment 1.

    The Fama-Fisher-Jensen et al finance people might say that ‘unrestricted borrowing and lending’ overcomes the problem of financial constraints preventing some actors in institutional environment 2 from having their preferences fully reflected in institutional environment 1.

    I say, the FFJ et al ignore the possibility that a financial crisis (even a ‘small’ local version of the GFC due to close to unrestricted borrowing and lending -ie creating financial securities out of nebulous air) interfers with the possibility of their advice having any credibility.

    Institutional environment 1 is, IMO, just another betting opportunity.

  18. EG, I am guessing that an election “book” represents a “market bubble” bell curve progression where the early participants invest the most and and the trailing participants invest the least as certainty centres, if that makes any sense at all.

  19. Ikonoclast, illegal? what if they were betting vegetables, and just for fun? It all goes rotten in the end.

  20. @BilB

    On reflection, I would not advocate criminalising “friendly wagers”. In post number 16, I indicated agreement with the views of University of Queensland law professor Graeme Orr on this matter. He’s drawn the right lines I think.

  21. In my experience friendly wagers can lose you friends. Especially if you have to collect.

  22. Not only do I think (professional) betting on an election should be illegal, I think that political donations should be illegal. We should work out ways of fairly funding political parties without donor money skewing the field, buying a politician or in any other way corrupting the political process.

    That said, I think either ALP, or ALP/Green/Indep, are a better than even chance in the House of Reps, and the senate I’ll need more time/info to figure out.

  23. @Donald Oats

    I don’t like the idea of any public purse funding of political parties. The way to go would be to permit only personal donations, not company or corporate donations. In addition, personal donations should be limited to a maximum of $100 per person per year. Fund raising events would also need rules and regulations. I am not sure what rules should be put in place for that but they would have to prevent unusually generous payments seeking to circumvent personal donation rules.

    Another way to approach it would be that company and corporate donations to political parties could attract a punitive 1,000 % tax.

  24. BilB, I don’t know the rules of the betting game. Under some rules your suggestion is conceivable.

  25. Michael West reports the unwillingness of the bookies to take bets for large sums of money. That’s not the same thing as not taking bets at all. Peter Brent at his Mumble blog has more than once recorded bets he’s placed (and so, presumably, had accepted). If they’re only taking small bets, I’m not sure how much that reduces their value as evidence.

  26. Ernestine, yesterday I floated the following notion to my economist friend expecting a resounding verbal thumping but got the opposite.

    Given that our inflation is heading to near zero on the back of stalled income growth driven weak consumer spending and the Reserve Bank is going to great lengths to prevent this while also attempting to hold our dollar low, it occurs to me that, following the evidence of many failed economies, the fast turnaround for this situation is for the Reserve Bank to print a measured amount of money for the government to disburse, not through banks, but through carefully targeted direct stimulus programmes such as regional development incentives, employment based environmental restitution programmes, and youth entrepreneurial programmes.

    I’m sure you will see some fish hooks in there, what might they be?

  27. Surely there’s also (d), that the bookmaker thinks, without the need for inside knowledge, that the 2 July poll will favour the Coalition more than current polls

  28. BilB @29, I can’t reply on this thread because, I am sure you agree, the content is not obviously relevant to the topic of the thread. There is a new Sandpit. If you wish, repost on the Sandpit and we can have a conversation.

  29. what about the fourth explanation – the natural electoral map skew in favour of the coalition – they need to lose by at least 51:49 for labor to have a chance

  30. @Kevin Cox
    That’s my strategy. I put $50 on Labor when they were 4.5:1 (plus SportsBet gave me another $50 of their money to play with). If the Libs get close to even money, I’ll put $50 on them.

  31. Maybe as a reaction to today’s news of Chris Brown’s dumping as the ALP candidate for Fremantle which has featured prominently throughout the MSM and fair enough too. Those odds are definitely attractive.

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