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The wisdom of crowds? What the odds tell us about the election

Ben Brettell, Senior Economist, looks at the latest indications from the betting markets ahead of the vote.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Today’s general election is set to be one of the most uncertain in living memory.

Gone are the days of calculating the vote share each party needs to win a majority and then checking the polls to see if they’re on track. Nowadays we need a more sophisticated approach to even stand a chance of predicting the result.

On the face of it there’s a sense of déjà vu. We’ve got a Tory leader with a sizeable poll lead asking the electorate for a mandate to ‘get Brexit done’.

Scratch a little deeper and it’s not so simple. There are many questions we don’t have the answer to.

Will Boris Johnson and Jo Swinson succeed in making this election all about Brexit? Or will Jeremy Corbyn manage to shift the agenda back to domestic policies, and in particular the Labour home turf of the NHS?

While the Brexit Party has agreed not to stand in seats already held by the Tories, will it split the Brexit vote sufficiently to limit Tory gains in Labour leave-voting areas? To what extent will remain-supporting Labour voters switch to the unashamedly anti-Brexit Liberal Democrats?

And the cross-party issue of whether the pre-Christmas polling date will dent the turnout, as voters focus on office parties and Quality Street.

The wisdom of crowds

In the absence of a crystal ball we can look to the betting markets to predict the outcome.

The odds don't simply reflect the bookmakers' opinions on what might happen. They’re formed by weight of money – in effect they gather the collective opinion of those willing to back their judgement with cold, hard cash. In fact in this day and age the bookmakers' odds are often led by the betting exchanges, like Betfair, where one punter can wager with another directly.

The theory is that the collective wisdom of the crowd is greater than that of political commentators, or indeed opinion polls.

All known information is reflected in these markets, and those betting significant sums (and therefore having most influence on the odds), are likely to be those who have taken most information into account.

Did the markets call the 2016 referendum incorrectly?

Some will point to the fact that the betting markets got the EU referendum ‘wrong’.

But this is a misguided way of thinking about probability. On the eve of the referendum the betting suggested around a 15% chance of a ‘leave’ vote – not a zero chance. 15% is around the probability of getting a six on the roll of a die – an outcome which surprises nobody when it happens, and certainly doesn’t mean the odds were ‘wrong’. Nevertheless it does show the betting market’s ‘favourite’ doesn’t always come out on top.

What do the markets predict at the moment?

Here’s what the markets are saying at the moment. Bear in mind the probabilities will often add to more than 100% because of the bookmakers’ margin built into the market. Odds correct as at 11 December.

Most seats

Conservative 1/20 (95%)

Labour 14/1 (7%)

Liberal Democrats 300/1 (0%)

A fairly clear-cut prediction here – the Conservatives are overwhelming favourites to win most seats.

Overall majority

Conservative majority 2/5 (71%)

No majority party 9/4 (31%)

Labour majority 33/1 (3%)

As the Tories have maintained their poll lead through the campaign, a Tory majority has firmed up in the betting, and is now a hot favourite. An even money shot (50% chance) when the election was announced, it’s shortened up to 2/5, which implies a 71% chance.

Worth noting though that at the start of the week the odds were 1/4 (80%), so the markets have become a little less confident during the final days of the campaign.

A hung parliament is the next most likely outcome, with Labour rated unlikely to form a majority government.

How many seats for each party?

For seat predictions the bookmakers produce an under/over market for each party’s total seats, with the odds set roughly equal either side of a set number (or ‘line’), which moves according to weight of money.

Conservatives 340.5 seats

Labour 224.5 seats

Liberal Democrats 17.5 seats

SNP 44.5 seats

Brexit Party 0.5 seats

Currently the market has the Conservatives well past the winning line of 326 seats for a majority, and likely to win more than Labour, the Lib Dems and the SNP combined.

The big change here since the campaign began is the squeezing of the Lib Dem vote. Four weeks ago the market were predicting Jo Swinson’s party to win almost 40 seats, whereas now it looks like they’ll struggle to win 20. Labour look to be the main beneficiaries, as Labour/Lib Dem marginals look to be turning red.

Read more of our general election coverage

All our latest expert comment in one place.

General election 2019

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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