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.

36 thoughts on “Polls, pundits and punters yet again

  1. @John Goss
    Yes, I knew it had to be something to do with the modelling – but it still doesn’t seem to affect my analysis that neither side can make it to 76, despite postal votes (given very large percentage of them, more than normal which must affect benefit to Coalition.

  2. Lyn Gain. If 11 of the 13 doubtfuls go to LNP, then they will get 76 seats. And although that is possible it is unlikely, as for 3 of the doubtful seats, Capricornia, Cowan and Herbert, the ALP is sitting on 50.7%, and normally 0.7% is enough of a buffer, so that postals and absent votes will not erode the lead. But we can’t be sure.
    I think 75 seats for the Coalition most likely.

  3. @Jim Rose
    Essentially the same thing in Canada in terms of law. I don’t think the enforcement is as strict. On the other hand, handing out election material at all, let alone near a poll would likely mean a nice visit to the friendly police station and some nasty legal stuff after the election.

    I remember being in the USA years ago on an election day and as I walked by a poll several party workers jumped out to hand me material. Weird.

  4. @John Quiggin

    Suggest waiting until the final results before asserting the markets got it wrong. And what is ‘wrong’ anyway? Take a sample of 20 elections and compare the implied probabilities with the results. Something can then be said.

    BTW I haven’t done one formally but have followed the markets very closely and I would “bet’ the proverbial house they are within a 95% confidence range. Punters are mean minded and greedy and quite often stupid but they are not biased politically in terms of their bets.

  5. @Historyintime

    A lot of small-time or one-off bettors are “heart bettors” or “whim bettors”. They bet on their team. They bet on the horse’s name, the jockey’s colours or a numerological scheme. Events like elections , football test matches (national games) and the Melbourne Cup can draw out droves of these “heart bettors” or “whim bettors” to skew the sample. These are not form analysts, these are idle one-off bettors.

    For a “whim bettor”, who risks little, bets seldom and has done no research on form, betting on the horse’s name, the jockey’s colours or a numerological scheme is rational. It’s a simple pseudo-randomisation strategy to make an easy, fun pick and “have a flutter”.

  6. Barry Cassidy says that it’s increasingly likely that we could be heading back to the polls. Being a constituent in the Melbourne seat of Chisholm, I actually feel a touch empowered for the 1st time in an election process 🙂

  7. @Troy Prideaux

    Malcolm may well want this, because the trade union campaign will not be as effective in the scenario of a short media-driven campaign.

    The current result was achieved on the basis of months of ACTU mobilisation and community engagement in particular seats. This cannot be replicated in a short campaign.

  8. @Ikonoclast

    There are small irrational betters as in any market. It’s the aggregate that counts (the price/odds) and needs to be objective.

    The ALP will win 68-70 seats ie small chance of hung parliament if all the cards fall the right way.

    And what are my qualifications for such pontification. Professional economist, lifelong psephologist (short list for Antony Greens job way back in 1988 but withdrew for a Treasury job, bad call!) and lifelong punter. The comments on the election sites are usually ill informed and those about election betting, well ……..I don’t know why I bother really. They seem to apply some theory which is way beyond my education to something which they really don’t know how it works in practice.

  9. Having said all that Sportsbet has the LNP at $1.22 to form government. Correct price $1.02. Run run rabbit.

  10. Turning to the larger ‘betting markets’, the ASX and the FEX, nothing much is happening there as at noon, 4/7/16.

  11. I’m surprised at how woolly some of the above analysis is. My ‘gut feel’ is that the markets maybe had it somewhat shorter priced for Coalition than ‘fair’, but…

    The fact that a 10% chance happens does not mean its odds were underestimated or mispriced. This should be obvious. Roll a (true) 10-sided then ask what were the odds the revealed number was going to come up.

    Another ‘fact’: Pretty much everyone seems to think that the result on the night was close to as bad as it could have been for Coalition, and pretty much as good as Labor could have hoped for. Yet it’s still odds on that Coalition will form Government. Antony Green is predicting minimum 73 and maybe 76 seats for Coalition. Let’s face it, if they get 74 or 75 they will almost certainly form Government (Katter + 0/1).

    Put another way, if we imagine it’s last Friday and running some kind of Monte Carlo simulation of the result, we are seemingly well down in the tail of bad results for the Coalition – and the straight ‘win/lose’ market is still about a 75% chance of paying out for Liberal.

    None of this is to say the outcome will be stable or good.

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