Is there a Favourite-Longshot Super-Bias in Election Betting Markets?
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The idea of a so-called favourite-longshot bias at the racetrack was first identified as long ago as 1949 by Richard M. Griffith, a psychologist based at the Veterans Administration Hospital in Lexington, Kentucky. What Griffith found, in a study of thousands of horses running at US racetracks, was that the shorter the odds at which a horse started a race, the better on average the value. In other words, a strategy of betting on horses starting at shorter odds would over the long-term tend to yield a better return than betting at longer odds. What was so startling about this discovery was the implication that it is possible to earn above-average returns by following a simple betting system which requires no knowledge of anything about the horses running other than the available odds. In a way, though, this is not so surprising, since it accords with the conclusions of a series of laboratory experiments dating back to a classic study by Professors Preston and Baratta, published in 1948. These experiments all found that subjects (under controlled conditions) tend to undervalue (or bet relatively too little on) events with a high probability of occurring (short odds), and to overvalue (or bet relatively too much on) events with a low probability of occurring (long odds). To this day, dozens of subsequent studies in the US and UK have confirmed the existence of this favourite-longshot bias at the racetrack, for bets placed with bookmakers and on the Tote. In a paper I co-authored, published in 2006 in ‘Economica’, we found there was some evidence of this bias even on Betfair, though much less pronounced. There are many theories as to what causes the bias and in what arenas it exists, but not until recently has any serious analysis been conducted into its existence in election betting markets. What evidence there is seems so far to points not just to a bias but to a super-bias. This was first highlighted in the 2004 US Presidential election when the favourite to win each of the states of the Union and the eventual winner was in every single case the same person. This is the equivalent of the favourite in 50 successive 2-horse races winning. Favourite-longshot bias or not, it just won’t happen at the racetrack! Move forward to the 2006 Senate elections and the feat was replicated, as every single contested seat fell to the polling day favourite. In the 2008 US Presidential election, the betting markets were a little less perfect – they got it right in just 49 of the 50 states. If this is not just an amazing set of coincidences, we are witnessing here a bias so extreme that a strategy of backing the favourite in every general election race is a sure-fire strategy for winning nearly every single bet placed. Does this mean you can pretty safely bet the market favourite to win every election to come? My view is that there’s some logic in betting what you can afford to lose according to such a strategy, but before you do (especially at very short odds), just bear one thing in mind. There’s only one thing you can be certain of – that there’s no such thing as certainty!
Reference:
Griffith, R. (1949), Odds Adjustment by American Horse Race Bettors, American Journal of Psychology, 62, 290-294.
Professor Leighton Vaughan Williams 