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The Betfair Prof: "It's the Madness of Crowds"

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Professor Leighton Vaughan Williams tells us why the betting markets were right on Super Tuesday, and why 'the madness of crowds' had a big impact...

One of the interesting issues resolved by the Super Tuesday deluge of primaries and caucuses was what I called on polling day the 'Zogby question'. Zogby is the pollster whose record thus far in the primary season is at least as good as most, better than many. Zogby is also the pollster who confidently called California for Mitt Romney by eight percentage points on the eve of polling. Given the eminence of this polling organisation it was perhaps surprising, therefore, that the release of this news barely caused a murmur among those trading the betting markets, who maintained their faith in Senator John McCain of Arizona.

In an interview on Betfair Radio I made this very point. If Zogby was even close to being right the short odds on offer about McCain were woeful and the commensurately long odds about Romney generous to a fault. The rest, of course, is history as the market favourite strolled to victory in the Golden State.

Once again I was reminded of my first personal experience of the relative merits of opinion polls and betting markets in forecasting the outcome of an election. The year was 1985 and a by-election was under way to fill a vacant seat for Parliament in a Welsh constituency called Brecon and Radnor. The key players were the Labour and Liberal candidates. On the day of the election a poll was published in the Daily Mirror, commissioned from the MORI polling organization. This gave the Labour candidate a commanding 18% lead over the Liberal. Meanwhile, a short walk to the local office of Ladbrokes (this was, of course, before the days of Betfair) found a rather different picture. The odds-makers were making the Liberal the odds-on favourite with the Labour candidate the relative longshot. The late-breaking MORI poll did nothing to change the price. Who won? It was the Liberal, of course, and those who followed the money.

Who said that John McCain and 'liberals' had nothing in common?

The moral of both these stories is that if a price in politics looks far too good to be true, it usually is far too good to be true.

There is, in my opinion, one clear exception to this adage, and it is contained in the often manic volatility in the markets on election nights and displayed again in the early hours (UK time) of Wednesday. As result after result came in, especially earlier in the night, the markets seemed to over-react wildly to breaking news, not least when Senator Obama's price shortened considerably when exit polls suggested he had won Georgia comfortably. Yet the news element in this information, when considered rationally, was thin.

Throughout the ensuing night the 'madness of crowds', as I would term it, was much in evidence. Those who were alert, sober, cool-headed and wise enough to take advantage will no doubt have ended the night of Super Tuesday considerably better off than they began it. Maybe try it next time!

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

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