So far I have looked at the individual constituency betting odds from the following perspectives: the chances of SNP gains, Labour gains and Conservative gains, the chances of the Conservatives and the Lib Dems defending their seats, and comparing the odds in the general overall majority and most seats markets with the odds in the individual constituency markets.
I have done so on the assumption that in aggregate the constituency odds are our best estimate of what's going on, while noting individual anomalies that I have spotted along the way (more commonly known as betting opportunities). I have further assumed that the individual constituency odds - for Labour and the Conservatives at least - are perfectly correlated contingencies (which of course they are not) to establish a handy tool for judging the chances of success for each of the main parties overall. The general idea is that looking exclusively at marginality takes insufficient account of the different nature of the seats (who's second, is there a relevant third player, where is the seat). The constituency odds factor those matters in to the best judgement of bookies and punters. By arranging constituencies by order of odds rather than majority, we can see how many seats gamblers expect the parties to take.
So all my posts so far have been based on the implicit assumption that there is some particular insight to be gained from the constituency markets in aggregate, even if some individual constituency markets are wrongly priced. Is this assumption safe?
In a word, no. Any kind of market can be wrong if the participants are in aggregate mistaken. Political betting markets, which are small markets by any conventional standard, have relatively little analysis put into them and many who bet on them are influenced by heart rather than head. They are to be read with care.
For a summary of the risks in such markets, I can do no better than to refer back to a post I made in the wake of the last general election:
I draw attention to the following points in particular.
"There is no special wisdom in the market
Money talks and money should be respected, but money can still be hopelessly wrong. Most political gamblers don't do as much research and testing as professional financial analysts. So there is probably more scope for uncovering errors to profit by than in the financial markets. It's always good to start with the belief that others are on the right track - assuming that your opponents are stupid is always a recipe for losing. But look for where assumptions may have been made. Those assumptions might be incorrect or out of date."
"Think about what's driving prices: it might not be the underlying odds
It is easy to assume that betting prices are driven by underlying probabilities. Not so. What drives betting prices is the money that is placed. Betfair automatically works in this way and conventional bookies are going to want to keep their books balanced. The price ends up as the balance between two competing flows of money.
This is particularly important in something as emotional as politics. A lot of gamblers want to back their own horse. This means that prices can be quite seriously askew, particularly in constituency markets.
The particular danger arises where a party has considerable support but relatively few exciting betting opportunities. The odds on the Lib Dems and the SNP taking new seats were way too short in most cases. This was observable in advance (at least, I observed it). For every Redcar there was a St Albans, a Sheffield Central, a Newport East and a Bedford. The SNP didn't even have those meagre satisfactions.
The same effect could be seen in a localised way for the Tories. In Scotland, the Conservatives came nowhere close to justifying the odds in some seats. The challenges in Morley & Outwood and Exeter failed, though Antony Calvert did very impressively in Morley & Outwood. The emotional satisfaction of backing an upset against a particularly unpopular (with Tories) Labour minister drove prices out of kilter.
It is no surprise that many of the longer priced bets that came home were on Labour candidates. There's something very unheroic about backing a candidate to retain a seat. It's much more fun backing a candidate to win a seat. But fun doesn't equate to money."
How might this affect betting for next time? I have already noted that prices on the SNP and UKIP in many constituencies seem way too short. The swings that the SNP would require to make even a few gains are large. UKIP have no track record and are not even that clear on their best target seats. Yet both have avid punters willing to back them at unappetising odds. It would be unwise to join either of these herds. If you must bet on either of these parties, bet on longshots. It is unlikely that either will benefit from a huge wave of popular support, but not impossible and some of the 50/1 shots are probably too long priced.
What about Labour, the Conservatives and the Lib Dems? These are harder to judge. We can see that the odds of the general markets are a bit more Tory-friendly than the odds of the constituency markets - but which of these is closer to the mark?
I need to do more analysis on their chances to judge properly how their odds stack up. How are specific groups of voters going to move at the next election? So my next few posts will look at the likely impact of UKIP supporters, voters in Lib Dem/Conservative marginals, 2010 Lib Dem voters in Labour/Conservative marginals and Conservative voters in Lib Dem/Labour marginals. I then ought to look at geographical considerations. And then I shall take stock.