Seventy one days until the election, arguably the most unpredictable in a generation, and perhaps we might hope that the bookmakers, renowned for putting their money where their mouths are, might be on the pulse.
A co-author of mine, Leighton Vaughan Williams, of the Betting Research and Political Forecasting unit at Nottingham Trent University, says that at least £40m will be staked on the forthcoming election, hence the bookmakers must surely have their prices right?
Making the news recently has been the story epitomised by the plot below:
This plot is of the price 20 bookmakers have been posting since 2010 of the bet for most seats at GE2015. It’s the reciprocal of those decimal odds, which gives the implied probability, and the thick blue and red lines are the Conservatives and Labour respectively, while the different shades of thinner lines are individual bookmakers. The pattern seems clear, that the Tories have shot into the lead recently, and quite some lead.
But bookmakers, and in particular Betfair’s fixed odds wing, have been offering bets in all constituencies around the country (William Hill, Paddy Power and Bet365 also offer north of 100 constituency markets). What can we learn from these?
The following plot, hard to decipher, shows the implied probabilities (vertical axis) for parties across all constituencies (horizontal axis):
What should be clear, hopefully, is that there’s plenty of variation! There’s still 73 days, after all. Digging a little deeper though, if we took the following rule of thumb: a party whose betting price implies a likelihood of victory of above 60% wins that seat, then we get the following outcome on May 7:
Lib Dem 26
Plaid Cymru 2
In other words the hung parliament we all expect, but Labour with the most seats…?
Clearly this discrepancy (Tories favourites to win most seats, but constituency seats implying Labour to win most) is not one offering a particularly easy arbitrage opportunity, but it does point to the complexity of the forthcoming election – how will the individual fights in constituencies influence the overall outcome?