The foreign exchange market has more volume and eyes watching it. Just watch the value of the GBP.

What is the formula to translate from betfair's back/lay for exit/remain to percent likelihood of each outcome?

This site does the calculation: https://electionbettingodds.com/brexit.html

Implied probability is 100 / odds

If the odds are 4:1, I'm not sure what that means.

100/4:1 is a notation mystery. 25%?

x:y or x/y means y / (x + y), so 4:1 is 1 / (4 + 1) or 20 %.

But what do "back" and "lay" mean?

Backing is betting on it to happen, laying is being the bookie for somebody else (i.e. betting against it happening).

So if something is 4/1 and you back it, you'll win £4 for each £1 you wager. If you lay it, you'll win £1 for each £4 wagered.

Betfair exchange is matching up people on both sides of the bet, with a margin of commission in between the back and lay values.

Back means you bet on something happening, lay means you bet against it happening.

You can go to the graph on betfair and "invert axis" to see the actual probability.

Now well over 4:1 for remain. The change in betting ods is extremely interesting from a statistical modelling point of view.

http://www.oddschecker.com/politics/british-politics/eu-refe...

I don't care about the result. I'm more interested in how our statistical modelling tools failed us. Thoughts? Did opinions change overnight? Did the polling miss a demographic?

Bradley effect: https://en.wikipedia.org/wiki/Bradley_effect

(Also known as social desirability bias)

Lots of people say in public that they're in favor of immigration, unity, and tolerance, because lots of people will call you a bigot if you don't, but in private, harbor old-fashioned ideas about nationalism, and well, polling involves a human and voting happens in private.

Makes me wonder about the Trump presidential odds: https://electionbettingodds.com/. They're not even as wide as the Brexit odds were earlier today.

Well, since we have much more information about presidential elections (which happen regularly) than we have about brexit (which is mostly without precedent), you could argue that election 2016 forecasts are probably more accurate.

I don't think that's the case though. I predict a Trump victory on the basis of a very strong social desirability bias and an immense amount of silent resentment against current social justice orthodoxy, especially as it pertains to speech restrictions on campus and in the workplace.

Yup. I got some money on Trump too, and tbh I was tempted to double-down on it now that we know he's facing a 100% "establishment" "PC" candidate.

I've gone through Italian politics in the '90s. We tend to be pioneers when it comes to political monstrosities.

Just curious, but have you acted upon this belief and bet on Trump in the prediction markets?

I don't have that much confidence in my analysis. I'm an amateur.

But if this is a known effect, why were the betting markets also wrong?

The betting markets had somewhere around a 35% of Brexit. So it wasn't that unlikely according to the betting markets.

I saw 15% before election data started coming out. That's pretty wrong.

It looks like the average was around 35%: http://predictwise.com/politics/uk-politics Interestingly the odds went down pretty sharply as the election came closer, but it is not really fair to pick the lowest odds when evaluating how good the predictions were. But even 15% odds are not really all that unlikely, about a 1 in 6 chance. It isn't as though pundits were predicting leave.

I think betting markets are prone to wishful thinking; there's no guarantee that errors of reasoning toward one side or the other will cancel out, since it's perfectly reasonable to imagine that errors in one direction are more common.

There's no guarantee, but the bookie is watching his, uh, book and adjusting the odds to make sure the payouts come from losing bets rather than his pocket.

Not on Betfair, it's an exchange. They make money either way.

Or maybe people are using the betting markets to hedge. Is that a dumb thing to do?

I think that hedging would have the opposite effect. The pound is tanking (30-year low right now), so if your salary is paid in pounds, it would have made sense to bet on Leave. I'm not sure who wins economically from leaving. British companies that compete with continental ones?

Pollsters were never confident of this result, with their adjusted and unadjusted results being all over the place, and were cautiously predicting Leave victories as recently as last week. There weren't any relevant precedents for them to test their models against, and the biggest factor in the Leave vote appears to be high turnout from demographics that rarely vote in other elections.

I've found it odd that the markets were far more confident in poll findings than the pollsters but assume that the bets were mainly placed on the simple heuristic that poll results tend to understate voters caution and attachment to the status quo.

Or, someone made a large transaction.

More likely that many people made bets, which they'll do when, as parent had it, "there's just been a surprising result announced."

Given that there will be a number of swings maybe a good strategy is to bet on the one with longer odds, wait till the next swing, sell and buy the other, rinse and repeat.

Profit!

Odds on 'remain' have already oscillated in the last few hours from 1/16 to 2/1 (94% to 33% implied probability)

I saw that reverse for a few minutes on Betfair. It's a fairly illiquid market looking at the depths.

About £100 million has the traded on that market, that's far from illiquid.