Betting Markets Can’t Save You From Political Polling’s ProblemsBy
Gamblers over-estimate longshots, under-estimate favorites
Market feedback loops can fuel bad decision making: study
The reputation of political pollsters has suffered a series of blows in the past two years, most recently with their failure to forecast the rejection of Colombia’s peace deal, but newly published research suggests betting markets are no better at predicting outcomes.
Gamblers bring their own flaws to prediction, according to analysis by Matt Wall, published in “More Sex, Lies And The Ballot Box,” a collection of essays about politics.
“Gambling markets can get it wrong, and sometimes they can get it spectacularly wrong,” Wall, who teaches politics at Swansea University, said in an interview. “People tend to think favorites are less likely to win than they are. Actually, favorites win quite a lot. On the other hand, people like to bet on long shots.”
Wall found evidence of this phenomenon, known as “favorite-longshot bias” when he looked at betting on individual seats in Britain’s 2010 general election. Punters overestimated the chances of outside candidates, and underestimated the chances of those who were actually well ahead in their races.
In the 2015 election, betting markets correctly predicted a victory for David Cameron and his Conservative Party, but gave him a less than 10 percent chance of getting the overall parliamentary majority that he eventually won.
Gamblers also got the result of June’s Brexit vote spectacularly wrong. The polls had wobbled around, with different surveys putting either side ahead, but as voting finished, betting markets put the chance of a vote to leave the European Union as low as 6 percent.
“The gambling markets began to feedback on themselves; people were looking at the markets more than the polls, and became convinced it was going to be ‘Remain’,” Wall said. “Brexit was the first time that’s really come through so strongly.”
The campaign to leave the bloc won by 52 percent to 48 percent and Joe Twyman, head of political polling at YouGov Plc, is skeptical about political betting’s ability to outperform polls. “Betting markets aggregate all the available information, and all that information is informed by polling,” he said.
Betting markets “reflect human opinions,” Wall said. “And human opinions can be wrong.”