Did the betting markets at Chesham & Amersham and Batley & Spen fail?
Two major electoral upheavals in the space of two weeks. Did the pundits and the betting markets underestimate the eventual winners as the Tories failed to beat both Chesham & Amersham and Batley & Spen?
First, an explanation of what I mean by betting markets. The days when only the ‘bookies’ decided what the odds should be are long gone. The odds you will see on exchanges like Markets they are the result of market supply and demand and reflect the ‘wisdom of the crowds’ rather than the opinions of a particular analyst. In fact, the odds you will see offered by standard ‘fixed odds’ betting sites are generally tied to these estimates.
How ‘wrong’ were they? Well, in Chesham and Amersham some punters managed to back the Liberal Democrats at 1/28 at one stage, though they fell back to around 7/1 on polling day. The maximum price he could have gotten at Labor in Batley and Spen was around 6/1 on Election Day.
A couple of outsiders winning back-to-back doesn’t necessarily make me think betting markets can be ruled out as a way to forecast the election. If our market says that something has a 16% chance of winning, you should expect that to happen about one out of every six times. If the favorite were to win every time, there would really be something very wrong with the markets.
However, I accept that it is an easy way out – we really don’t have enough choices to determine how accurate the markets are compared to other forecasting methods. It’s not like sports where we can watch a large number of, say, tennis matches and verify that players who have a 30% chance of winning actually win 30% of the time in the long run.
Still, we can say that of the 17 British by-elections held since the 2015 general election (with betting markets available), the favorite, or most likely winner, was defeated in four. There is not enough data here to draw firm conclusions, although it is interesting that three of the unexpected results were that the Conservatives failed to win seats and the other was a failure of the Brexit Party (in Peterborough). Observers have often suggested that betting markets tend to overestimate the performance of right-wing parties, particularly populists. I guess this is a little test that could be used to back that up.
I suppose on reflection it could be argued that people probably underestimated local issues in the two most recent contests. Based on national polls, there was no way the Liberal Democrats would win Chesham, but it appears voters wanted a chance to vent about HS2 and plan reforms. Recent local election results also indicated that they may have had a decent chance.
At Batley, perhaps Kim Leadbeater’s personal strengths were underestimated. At least one astute bettor in the area had told me that she would be a very difficult candidate to beat from far away. The story of the Matt Hancock affair couldn’t have helped the Tories much, though the betting markets barely moved at the time. Predicting a close election or even a Labor victory was not illogical. George Galloway gets more than 20% and Labor wins? I wouldn’t have accepted 100/1 if you had offered it to me beforehand.
Matthew Shaddick is Director of Policy at Smarkets