Aug 30, 2010

Betting on the Federal Election Vs. Following the Opinion Polls

The Australian Federal election is still undecided with each party on 72 seats and 4 independents about to decide the "winner". (Poisoned chalice that it will be).
Interestingly throughout all this "uncertainty" the stock market hasn't skipped a beat. People are saying this is because there is no real uncertainty because the vote is between two parties with very similar policies (or similarly unknown policies); or each party offers some good and some bad for business so each is cancelling the other out. Or as more than one radio commentator has put it, it appears we don't need a government at all...

What's been interesting has been the rise of the "betting market". You can bet on anything in Australia, and for the last few weeks the betting in the election outcome has been tracked as keenly as the opinion polls. In fact more keenly, as there is a general belief that the betting market provides a more accurate predictor than the polls.
Why is this?
Today according to SportingBet the odds are $1.45 on the Coalition and $2.65 on Labor. The "market" is "pricing" the Coalition to win.

Why would betting odds be more accurate than opinion polls? The theories go:
  • bets are placed by insiders in the know
  • people lie in opinion polls but not with their betting money
  • predictive markets with two choices tend to mirror a "mean average" result which mirrors reality, where the beliefs of the participants are evenly spread out, and the participants are betting to win
The last theory, if true, would mean the current election situation - voting split just about down the middle, and lots of people betting - would certainly favour a predictive market. So perhaps the betting markets are especially accurate this time because of the nature of this particular election.

For more - and better informed - information on the nature and accuracy of predictive markets see Wikipedia at this link:

ADDENDUM, two weeks later: Labor finally won, and there has been less talk lately about the accuracy of the betting markets! This was a uniquely weird election though, so hard to say.

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