Wednesday, 18 May 2016

Bet "Leave" at 11/4

In recent days, several people have asked for my view on the EU Referendum result.  I have spent three years on a PhD looking at EU support in Britain and a lifetime in political betting, on and off as a political odds-maker.  I've also taken some serious hits.  The worst was a £16k loss on the 1997 General Election opposing the Lib Dems.  As a spread bet, for every seat they won over 30, I lost £1,000.  They got 46, including winning Winchester by one vote.  The first one vote winning margin since 1867.  Even today I wince as I drive past that place on the M3.  So here we go again.

This blog believes in 'crowd wisdom' as expressed by betting market indicators.  On a liquid market like the EU Referendum, we should expect the market to be a reliable guide as to what may happen.  Taking it on with a bet, together with the bookmaker margin, is unadvisable.  Unless you have a strong view that is.  And I think there are two things badly wrong with the market at the moment.

The first is bookmakers are taking positions with 'Remain'.  It is likely that Ladbrokes and William Hill have £1m+ liabilities on a 'Leave' win.  There are plenty of Leave backers out there, but generally the layers are not prepared to make commensurate changes to their odds when accommodating them.  This means their prices don't actually represent market sentiment, but their own trading floor views.  We've seen this before with the General Election, Corbyn and Trump, and each time they have come unstuck.  They think they know better. 

From talking to the current odds-makers, and seeing them operate, it's clear they are being 'advised' by political experts - academics and the like.  Matthew Shaddick, the political man from Ladbrokes, likes pitching up at academic conferences.  In an unholy alliance, he denounces the value of his customers opinions in front of an appreciative audience of expert political scientists, who also loathe betting as a predictive indicator.  At one conference before the 2015 GE, he stated that "political markets are not a good guide to what may happen".  So better take the expert view instead, the complicated academic models and frigged polling methods, with thousands of highly breakable whirring parts.  Received academic wisdom tends to think that the 'Government cue' is still strong, like it was in 1975, and that voters are uninformed and uninterested on Europe and will fall into line.  My own research of British Election Study data from 2008-2012 shows the opposite.  Voters are increasingly independent minded (volatile) and have responded to the crisis in the Eurozone (something Leave should be focusing more on).  Since 2000, EU referendums in Holland, France and Ireland have all gone against the pro-EU Establishment, much to their surprise.  Who is to say it won't happen likewise in more Eurosceptic Britain?

The academic experts and even pundits like are also poor oddsmen.  Firstly they are inherent favourite backers.  That is what betting unsophisticates do.  They think 'what is most likely to happen?' and go for it.  A bird in the hand is worth two in the bush.  But betting is about assessing chances against odds of reward, in short, value.   

Secondly, all the noise you hear on Twitter is either from fruit-bat 'Leave' evangelicals or reasoned liberals.  That is the image anyway.  Academia - showered in EU money - is pro-remain, and hangers on to their output, particularly those noisy on Twitter, like politicalbetting, are well known liberals too.  In short, 'informed social media' doesn't want Leave to win, and doesn't want to back something it despises.  The same happened with the Tory victory, Corbyn and Trump, whilst the betting public felt differently - and won.  Ladbrokes lost £2m on GE 2015.  An extraordinary failure when they had so much two way business to eek out a profit.  This was a golden opportunity for bookmaking to prove its worth against polling, instead it just followed it, breaking the golden rule that the market knows better than a handful of traders.     

Lastly, I think a bubble for Remain is developing.  This is most evident in the Times Red Box Survey, where the great and the good of British Politics (and the public) are asked to submit their predicted vote percentage for Remain (average is 54%).  It's revealing.  For example, Matthew Parris thinks 62.5% which proves he is unhinged.  But surely, people are going to be influenced by what others have entered, even Parris and a phalanx of other liberal insiders, kindly marked up with an asterisk on the site so we can pay them special attention.  The exercise lacks one key criteria for a 'Wise Crowd' - independence of judgement.

Then there is Betfair.  People will say that this is a perfect betting market and it doesn't involve bookmakers taking positions, advised by their academic advisors and powered by their own egos.  This is just wrong.  The exchange market reflects the strong traditional fixed odds market.  Arbitrages between the two are soon filled in.  And the old world bookies are far less likely to move their prices.  This is why they build up their liability positions.

Set against the noise of this betting event, and structural reasons why bookmakers may be underestimating Leave chances in their prices, there is some solid evidence to examine.  Pollsters are all over the place and have lost credibility.  But one thing about their averaged results can be relied upon - they will be consistently wrong over time.  We may not know just how well Leave and Remain are doing at any one moment including now, but over the days and weeks we can see how things are moving for the two camps (assuming no methodological changes by the pollsters).  Here there is a clear trend.  Leave are winning this campaign.  Look at the remorseless rise of the red Leave line to now challenge the blue Remain line.  This trend matters hugely, because unless there is some fundamental change to how the campaign is being conducted, it is likely to continue.  And that means - from the graph below (courtesy of Prof. Harold Clarke) - Leave could soon start to overtake Remain.  (Update 13/06/2016 - And they now have).

(Updated 13/06/2016)

So what is the advice for someone who wants a bet?   Look at  11/4 is generally available about a Leave vote.  Have a go and pick up a free bet at the same time.  These odds suggest there is only a 26.7% chance of Leave winning, and 73.3% chance of Remain winning.  It is worth checking these percentages against the full gamut of prediction percentages on the excellent