The miracle of the markets? What political betting markets can tell us about likely outcomes in the near future.

By Matthew Wall

I’ve been doing some research work with my colleague Maria Laura Sudulich on political gambling markets in the UK and Ireland. We’ve been looking recently at whether they can be used to produce more reliable seat forecasts for UK general elections than vote intention polls (thus far, we’ve found that polls produced better forecasts). There’s a bit of a debate ongoing among some academics on whether polls or gambling markets are better sources for political forecasts. Being an academic debate, it’s written in a language that is rather inaccessible – but for the intrepid reader it is a highly interesting topic.  

The current state of play in this debate is that it is very difficult to know whether polls or markets are ‘better’ – probably the important intuition to keep in mind is that both polls and markets represent sources of useful information. Some big advantages of markets are:

1)      They can be continuously adjusted in line with changed perceptions (when the prices offered by bookies or punters on betting exchanges change).

2)       They offer some indication of the betting market’s perceptions of the extent to which a given event is likely or unlikely (higher odds are offered for less likely events, lower odds for more likely events). As such, they comprise a different type of data than polls, which only offer a point estimate of a property of a population (usually population-level vote intention for each party) at a fixed point in time.

3)      They estimate the likelihood of events not typically assessed in survey research – such as the most likely (not most preferred) person to be the next Taoiseach.

4)      Most usefully for me – they are free! You don’t have to commission a representative survey (expensive!) or go through all of the hard yards of carrying one out yourself.  You can just visit the websites and have a look.    

So, while polls are interesting, markets are too, and markets can tell us about some topics that polls do not .Yet we seem to spend a large amount of time looking at and debating polls, while hardly concerning ourselves at all with what the markets are saying. All of this is my way of saying: check out the online politics markets!

For instance, Ladbrokes.com, and Betfair.com[1] both offer odds on the timing of the next Irish general election. In spite of arguments in favour of an election as soon as possible to secure legitimacy for medium-term fiscal measures, common sense and democratic ideals seem unlikely to win the day, according to the betting markets at this point in time: Prices on both sites make 2011 the strong favourite, indeed the prices on offer indicate that 2012 is perceived as more likely to be the next election year than 2010!

 2010 is available at a tasty-looking 7/1 at Ladbrokes, and 9/2 on Betfair.

2011 is 1/3 at Ladbrokes, and 4/11 at Betfair.

And 2012 is 11/4 at Ladbrokes and about 3/1 at Betfair.

Another really interesting market rates the likelihood of various coalition alternatives. A caveat here,  the markets got this outcome pretty dramatically wrong in 2007. According to Michael Gallagher’s account the FF-Greens-PD coalition option was an outside bet, 8-1 and fifth favourite, on that fateful election day. That said, here are the Ladbrokes odds:

Selection Odds
FG/Lab 1/5
FF/Lab 5/1
FG/Lab/Grn 12/1
Lab/Grn/SF 22/1
FF/Grn 28/1
FG Minority 28/1
FF/FG/Lab 33/1
FG/Grn 33/1
Lab/GM 40/1
FG/Grn/SF 40/1
FF Minority 40/1
FF/SF 40/1
FF/FG 40/1
Lab Minority 50/1
FG Majority 66/1
FF Majority 100/1

 

And here’s the market at paddypower.com

Next Government AFTER Next Election Hide
**Applies to the next Government formed AFTER the Next General Election (expected in 2012) in the 31st Dáil. Does not include a caretaker Government.

FG/Lab 1/5

Lab/SF/Green 28/1

FG/FF 50/1

FF/Lab 13/2

FF/Green 28/1

Labour Minority 66/1

FG/Lab/Green 10/1

FG/Green 33/1

FG/SF 66/1

FG Minority Government 25/1

FF/FG/Lab 33/1

FG Majority Government 66/1

FF/Green/SF 25/1

FF/SF 33/1

FF Majority Government 125/1

FG/Lab/SF 25/1

FF Minority Government 40/1

 

In 2007, the coalition markets were considerably more fragmented: with four front running possibilities (FF-Lab, FG-Lab-Greens, FF-Greens, FF-PDs), and no odds-on favourite. This time around, there’s a totally different pattern – with one heavily favourite front runner (FG-Lab)and the rest trailing behind. Keep an eye on these sites to see whether and how prices come in or go out in the coming weeks and months!

 


[1] Interestingly – paddypower have ‘Politics’ categorised as one of the ‘Sports’ that their users can bet on.   Paddypower have a similar market on election dates but no published odds that I could see on a 2010 election.

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2 thoughts on “The miracle of the markets? What political betting markets can tell us about likely outcomes in the near future.

  1. How Ireland Voted 2007 had a chapter on betting and the election, and it appeared from that that the markets were on the whole following and being driven by the polls rather than constituting an independent source of information. Some of the markets were sizeable, while others were too small to treat as a reliable measure of developments. No doubt the two recent polls finding Labour to be currently stronger than either FF or FG explain why Labour is currently favourite with bookmakers to win most seats when the election comes, though those who study the polls closely seem to feel that the other poll in the recent sequence, the Red C poll that had Labour in third position, may be the most reliable.

    • I’ve kept track of the markets on the Presidential election and see the same thing; significant movements only really occur in response to the polls. The only time I saw a big shift is the day before the poll that shot Gallagher into being a contender, he went from 50/1 to 25/1 overnight. This may have been due to someone having a bet on Gallagher/ or because Paddy Power had been given an indication of the results showing Gallagher doing surprisingly well. There doesn’t seem to be any indication that it is independent of polling.

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