This article first appeared on 16th April 2020 at gamblerspick.com
Not so long ago – four years to be precise – there was a growing belief that betting markets offered the best guide for predicting elections. I conducted literally hundreds of interviews on the subject.
Within the space of a few mad months in 2016, the theory imploded, following historic upsets in the two biggest political betting markets of all time. How does it stand up after gathering four more years of evidence? Should pundits be following the betting with a laser-like focus or ignoring it? Should gamblers be backing favourites or looking for outsider punts?
Pre-2016, Political Favourites Were Ultra-Reliable
First we must remember why the theory developed. Political betting markets only grew to large global scale in the 21st century. Betfair – the world’s first online betting exchange – swiftly became the premier platform after being founded in 2001. This is where the biggest amounts were traded and – driven by peer-to-peer betting as opposed to the opinions and commercial imperative of an individual bookie – offered the clearest guide to crowd opinion.
Elections in the UK and USA produced by far the biggest markets. In every general election in either country between 2001 and 2016, the favourite at one hundred days out went on to win. By favourite, I mean to win the most seats in the UK parliament or to win the presidency.
There were caveats. This amounts to a small sample – six elections in total. The secondary market in both the 2010 and 2015 UK elections – regarding whether one party would win an overall majority – failed to meet the 100 day criteria. The 2004 US election was indeed won by George W Bush, but betting signals earlier on election night swung towards John Kerry, implying up to an 80% chance.
More generally though, the betting did provide a great signal during that period. Smaller markets – London Mayor, German Chancellor, French President, Scottish Independence Referendum, US mid-terms – met the criteria.
Brexit and Trump Broke the Mould
That ‘wisdom of crowds’ hypothesis collapsed in 2016. In the UK’s referendum on EU membership, Leave only became favourite once the result was almost mathematically certain. It was a 10-1 chance as the first results emerged. So too was Donald Trump, early on election night.
Since those seminal moments, the picture has been mixed. There have been two further UK general elections. The perfect run of favourites in the ‘most seats’ market was maintained by the Conservatives winning in 2017 and 2019, but that secondary ‘overall majority’ market flipped late again. The 2017 election turned out to be particularly unpredictable. In the USA, the Democrats did justify long-term favouritism at the 2018 mid-terms.
Results elsewhere have also proved inconclusive. For example, the Social Democrats led all the way in Sweden’s 2018 general election but Scott Morrison’s Liberal Party pulled off another shock with a late swing in the 2019 Australian Federal Election. When Emmanuel Macron became French President in 2017, his new En Marche party had started out at 66/1 and were only rated third in the betting at the hundred day stage.
Early Betting, as Opposed to Polls, Points Towards Trump
What therefore, are we to make of this theory heading into this year’s US Election? We are still around two hundred days out so plenty can change. However right now, there is a vast disparity between what the polls imply and the weight of money in betting markets.