Prediction Markets: What the 2009 Epsom Derby can tell us about the market, and about the ballot box!

The Betfair Prof / Leighton Vaughan Williams / 09 June 2009 / 1 Comments

The Betfair Prof, Leighton Vaughan Williams, takes a look at the ins-and-outs of the Epsom Derby...

The weight of opinion among the spokesmen of the major bookmakers, as reported on the morning of Epsom Derby Day, was that the John Oxx-trained 'Sea the Stars' would go off an even more sold favourite than he was in the early trading. And indeed, all the 7 to 2 soon disappeared, to be replaced on the bookmakers' boards by 11 to 4, and by the time the market opened on course, that price (bar the odd 3 to 1 and 5 to 2 in places) was pretty much set in stone.

Meanwhile, Criterium de Saint Cloud winner 'Fame and Glory', available at a general 4 to 1 in the morning, opened on course at 7 to 2, touched 4 to 1 in places, and after frantic late trading, went off as 9 to 4 favourite. What happened? Well, an enormous late plunge, including one confirmed wager of £40,000 to win £110,000 might have had something to do it! All those 7 to 2 and 4 to 1 offers were soon wiped off the boards and market-watchers who like to follow in those bettors who unload the biggest satchels might perhaps have been forgiven for thinking the horse was home and hosed before it even exited the stalls.

In the event, the Montjeu colt performed creditably enough, and might well have benefited from a stiffer pace, but was never going to prevent Mick Kinane from following up his 2001 Derby success on Sea the Stars' half-brother Galileo.

So what can we learn from this? Well, the consistent money pointed firmly in the direction of Sea the Stars. The money for 'Fame and Glory' was late and big, but from what we can ascertain derived from a few very large individual punts. Still, money is money, and prices in a market respond to the weight of it, wherever it comes from. But live, flesh-and- blood price-setters need not respond solely to the sheer relative volume of money about different horses, but also to what information the money is imparting. Would you as a price-setter respond in the same way to ten bets of £4,000, placed gradually throughout the day, as you would to one £40,000 punt three minutes before the off? And should you?

In the event, we know that the late and very large plunge came for the unbeaten colt that was already known to travel and to stay. And we were confirmed in our knowledge that he travels and stays. The only part of the triumvirate of qualities that wasn't confirmed was his unbeaten status. If the market was like a ballot box in a first-past-the-post election, the winner of the 2009 Investec Derby and the winner in the market would, I judge, have been one and the same. But betting markets don't work quite like ballot boxes. Most obviously, you can buy more than one vote.

And so the market got it wrong and the ballot box (most probably) got it right. Would that the same were always true in the world of politics!

Professor Leighton Vaughan Williams is the Director of the Political Forecasting Unit and Betting Research Unit of Nottingham Business School, Nottingham Trent University

Comments (1)

1. paul jones | 09 June 2009

   fascinating article and right on target- its something worth taking even further in regards to market manipulation in this day and age of bots and traders.