Larvatus Prodeo

MB writes: I’ve always been of the view that the “wisdom of the crowd” hypothesis doesn’t work very well in the case of prediction markets for elections - because the number of insiders who have relevant information not available to anyone else is miniscule. One instance I followed closely was the Queensland state election - where the odds for the number of seats Labor would win very closely paralleled what the polls and the pundits were saying. I actually did have a bit of inside info, and I made about 1500 bucks, which I couldn’t have done if there’d been tons of people with access to such info. Possum’s piece in Crikey today, I think goes some way to confirming my view that the markets are basically parasitic on the polls because in the absence of any, punters went with “received wisdom”, which got the result spectacularly wrong.

Possum writes: If you were to look at the betting markets for the NT election last week, you’d be forgiven for thinking that the ALP had a greater chance of being abducted by the latest outbreak of NT UFO’s than they had of being beaten by the CLP. Yet, with no major pollster running pre-election surveys in the Territory, should we be at all surprised that the markets got it so wrong in terms of the chance of Labor retaining government?

As much as political polling is scorned as reducing important political issues down to little more than horse race commentary, it fulfills one fundamentally important role — it stops people talking sh-t.

From politicians to columnists, from reporters to your average Joe – political polling encourages all but the learned types at The Australian to keep it in their pants.

With no major polls in the Territory election, information about the election itself was dominated by party propaganda on the one hand and political commentators staring deeply into their navels on the other - usually finding little more than lint as a result, but lint dressed up as profundity none the less. Without polling information, election campaign analysis becomes an exercise in either wishful thinking or what ought to happen — and as we’ve seen in the Territory, theories on what ought to happen were well formed, plentiful, but mostly wrong. There is no substitute for the type of empirical reality that only polling can provide.

It’s a pretty simple rule — you can’t really analyse what you don’t really know.

What makes betting markets valuable is their capacity to aggregate all available sources of information to predict a result, but without polling information anchoring the market to some semblance of reality, without that knowledge of what people are actually thinking on the ground, the betting markets were left drifting in the breeze, ostensibly being guided by lint powered column inches telling us that Labor was a shoe in because, well, that’s what ought to happen.

So should we really be surprised that without political polls running in the Territory campaign, the markets were so out of whack with the result? While the markets may have gotten the end result right, the magnitude of the victory will probably come down to a few hundred votes — hardly the landslide that was predicted, and certainly not justifying 1/14 odds that some markets were offering.

Good information makes good markets, and there is no better information than good, independent polling. It provides far more than fodder for horse race political commentary, it provides certainty and knowledge and evidence for observable reality. And at the end of the day, isn’t observable reality what all good political commentary should be about?