## Saturday, April 14, 2018

### Betting markets

As we inch towards for the 2019 Australian Federal Election I am now turning my mind to betting markets, and keeping track of the odds book-makers provide on the winner of the election.

Unlike for the 2016 election, bookmakers are typically offering odds on wildly improbable outcomes: that the Prime Minister will come from Pauline Hanson's One Nation, the Greens, or even the Australian Conservatives. Bookmakers include such improbable options to maximise profits. And they include these options at odds that overstate the real probability of the next Prime Minister coming from one of those parties. It is an example of a longshot-bias in betting markets.

There appears to be two drivers for the longshot bias. First, punters seem to systemically over-estimate the probability of a longshot outcome. Second, bookmakers can be risk adverse at the very long end of a market. They are often loath to list odds longer than (say) 100 to 1, because the bookmaker carries the risk that the listing could be costly should the longshot come in with a late bet on the longshot.

As I did with the individual seat odds for the 2016 election, to correct for the longshot bias, I am ignoring the over-inflated odds in respect of the minor parties forming government after the next federal election.

My first automated collection of odds, and the implied Coalition win probabilities follows.

House Coalition Odds ($) Labor Odds ($) Coalition Win Probability (%)