Recent surveys about Brexit depict a very close race between the supporters of ‘Brexit’ and ‘Bremain’. Basing itself on the last 6 polls, The Telegraph asserts that the gap has narrowed to a thin 51-49 majority in favour of remaining in the UK. The Week has drawn similar conclusions: the 2% difference between ‘In’ and ‘Out’ supporters is insignificant if we consider that 4% of voters admitted to be unsure about their vote.
The question now becomes: to which extent can we trust surveys? And are there alternative, more reliable sources of wisdom? In the UK, the answer is ‘definitely yes’ and is in the hands of the likes of Ladbrokes, William Hill and Betfair.
As explained by James Surowiecki in his book The Wisdom of Crowds, betting markets are great ways to aggregate heterogeneous opinions across a given population. More importantly, by putting their own money at stake (by definition), bettors should not focus on their own views but predict the outcome of the vote instead. Provided that the market is liquid enough, academics such as Justin Wolfers built on Surowiecki’s work to demonstrate that, actually, those markets were the most accurate predictors of future event outcomes – and were given the name of ‘prediction markets’ as a consequence.
What are the odds then? Well, all bookmakers concur to assert that the situation is much clearer than the polls suggest. The odds of a ‘Bremain’ on Betfair, the leading betting exchange platform (i.e. a platform where players take bets against each other), have been fluctuating between 1.30 and 1.60 over the last few days, which translates into a probability range of 62% to 77%. This takes into account the recent bombings in Brussels which slightly revived the ‘Eurosceptic’ sentiment – see green arrow in the chart below. According to the same bookmaker, the exact split as of yesterday was 65-35 in favour of ‘Bremain’, with more than £2.7m worth of matched bets.
Beyond bookmakers, the world of finance also provides us with a number of prediction markets. The evolution of the GBP/USD exchange rate, for instance, is another way to assess the relative ratio of power between the two sides if we believe that a Brexit would translate into a significant depreciation of the pound. This type of analysis, however, does not allow us to deduct a precise probability of ‘Brexit’ happening but can only track its relative evolution.
Given the high stakes, the political establishment will undoubtedly keep a close eye on these indicators over the next few months. Will they prove accurate?
For those unfamiliar with Betfair, here is a short corporate video presenting the basics of the betting platform.