You've probably heard the claim that "democracies never go to war with each other". Ironically, it's often used as an excuse for warmongering, because the theory is that democracies can eventually bring lasting peace to the world by forcibly "liberating" non-democratic countries. And note that it's an absolutist claim, or a "golden rule" - there is supposed to be literally no example in history of an armed conflict between democracies.
That's utter garbage, of course - in reality there's a list as long as your arm of conflicts between democracies. But in each and every case, the true believers in the golden rule have a get-out clause up their sleeve. "That wasn't really a war, was it? And that country wasn't a proper democracy." Sometimes the logic becomes laughably circular - for example, a war causes instability, and no country can possibly call itself democratic if it isn't stable!
I'm reminded of that kind of nonsense when I hear people profess their absolute faith in the pseudoscience of 'the betting markets as an infallible predictor of election results'. And I use the word 'infallible' advisedly, because you'll doubtless recall Betfair's breathtaking arrogance in feeling able to declare a few days before the referendum that No had already won, on the grounds that their exchange is "never wrong". As a marketing stunt, they even paid out early on Sportsbook referendum bets.
One of the High Priests of this bizarre religion is self-styled superstar "risk assessor" Neil Edward Lovatt. As regular readers may know, I had to mute Lovatt on Twitter a few months ago because he was wasting far too much of my time with his incessant trolling. I eventually blocked him altogether when he started making some deeply unpleasant personal comments, and I also muted some of his more persistent risk assessor groupies. However, they seem to multiply with water, and although I haven't had an exchange with Lovatt for months, my Twitter notifications timeline has recently become clogged up once again with people I've never heard of demanding that I worship at the altar of the betting markets, and warning me that if I don't, it will be proof that I'm a believer in homeopathic medicine (yes, really!).
To save myself the trouble of responding individually to these inane tweets for the remainder of time, here is a quick cut-out-and-keep guide to three examples that explode the myth of the infallibility of betting markets and betting odds. In each case, there's a very different reason why they proved to be so embarrassingly unreliable.
Exhibit A : The 2006 Liberal Democrat leadership election. There was a straightforward clash between conventional political wisdom, which identified Menzies Campbell as the obvious successor to Charles Kennedy, and the betting odds and markets, which counter-intuitively installed the little-known Chris Huhne as the favourite. If the markets are infallible, or even if they're more reliable than other sources of information, then the money on Huhne should have been a very clear indication that something surprising was happening beneath the surface. But there wasn't anything happening. As it turned out, the conventional wisdom proved correct, and Campbell won at a canter.
Reason for the inaccuracy : It seems overwhelmingly likely that rich supporters of Huhne had placed a series of large bets to earn him the coveted 'favourite' tag, and to artificially generate momentum for his campaign. This is the problem with the belief that the betting markets somehow reflect "the wisdom of crowds" - gamblers may be motivated by something other than the quest for a value bet, and in any case it only takes a few wealthy individuals (as opposed to crowds) to tip the balance. We heard from the bookies during the closing stages of the referendum campaign that the vast majority of bets taken in Scotland were backing Yes to win, but the odds instead reflected a relatively small number of six-figure bets that had been placed on No, mostly south of the border.
Exhibit B : The 2010 UK general election. A month before polling day, there was a clear divide between the polls, which were pointing to a hung parliament, and the betting markets, which pointed to a Conservative majority. Again, if the markets reflect the "wisdom of crowds", they should have been able to easily outsmart the polls, which after all are snapshots and not predictions. But for all their imperfections, you'd have been much better off believing the polls - the Tories fell twenty seats short of a majority.
Reason for the inaccuracy : Wishful thinking from wealthy Tory-supporting punters, who slipped into the groupthink of believing that the polls must be underestimating the Tories' chances, as they did in 1992.
Exhibit C : The 2007 Holyrood election. This is my absolute favourite. As you'll recall, because of difficulties with the counting machines, it took until 6pm on the day after polling for the final results to be declared, and for most of the intervening period, Labour were well ahead in the running seat tally. The betting markets followed those numbers, and suggested that Labour had a 90%+ probability of winning. However, as early as about 10 or 11am, BBC Scotland's political editor Brian Taylor had announced that it looked from intelligence on the ground that the SNP would end up marginally ahead by the end of the day. There were a number of televised interviews throughout the afternoon with despondent Labour MSPs, who clearly had the same expectations of the final outcome. And yet still - astonishingly - the "infallible" markets didn't budge.
Reason for the inaccuracy : The punters piling in with the most money, firmly believing they were earning themselves free cash, were based south of the border. They were getting their "information" from the London media, and were missing what was right under their nose - it didn't even occur to them to do something as obvious as check the live blog of Scotland's leading TV political journalist. There must have been people in Scotland who made an absolute killing that day, simply by switching on their TV.
Lesson - the "wisdom of crowds" isn't of much use if the crowds are in the wrong country. If you wanted to predict an election result in Poland, you wouldn't ask a crowd in Denmark, would you?