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Analysis
Bookies’ favourites normally win

Bookies’ favourites normally win

Weighing up the odds on Britain’s poll

by William Keegan in London

Mon 7 Mar 2016

I am still coming to terms with the prospect of the British EU referendum. Back in 1975, when we covered the first referendum campaign at the Financial Times, there did not seem much doubt about the outcome. It was an impressive two-thirds for remaining, and one-third for leaving.

This may have been not least because the British had spent over a decade trying to persuade the other members in general, and the French in particular, to accept us. However, wise heads such as David Watt, the great FT political editor of the time, hedged their bets. Watt said then that Brexit (then known as 'secession') was 'inconceivable in this generation'.

So here we are, a generation and a half later. This time David Cameron, not the ever-wily Harold Wilson, is in charge.

One of the intriguing features about the 2016 referendum is that the opinion polls are close, but the betting market is not.

As a follower of horse-racing, I am well acquainted with betting odds. I find that most political commentators, and newspapers generally (outside the rapidly diminishing racing pages), almost invariably misreport betting odds. You can almost guarantee that, when they report that the odds are 'on' a certain outcome, they really mean that the odds are 'against' such a result.

In the case of the 23 June poll, since betting opened the odds quoted by William Hill, unlike the opinion surveys, have been pointing strongly to a maintained status quo and against Brexit. That is to say, the odds are on Britain voting to remain. Indeed, at the beginning of March, the odds have been lengthening against Brexit and shortening on remaining. Shorter odds mean, of course, that you win less for your stake.

Thus the odds on the UK staying in have moved from 4 to 9, to 4 to 11, and now to 1 to 3. In the latter case, if you wager £3 on Britain remaining, and after what we 'ins' would regard as a successful outcome, you win your bet, then you only win £1. And of course you get your £3 stake back.

Conversely, as the counterpart of that 1 to 3 quote, William Hill were offering 5 to 2 against Brexit, or secession. You place £2 and win £5, plus your stake back, if some of the opinion polls are right and Britain is heading for the exit.

Well, I hope the bookmakers are right. Here, we are really talking about where the money is going, not just the view the bookies themselves are taking.

Odds-on favourites usually win, but this is not always the case, in horse-racing and elsewhere. Students of the succession to Mervyn King for the governorship of the Bank of England in 2013 may recall that Paul Tucker, the internal candidate, was a hot 2 to 7 favourite, and Mark Carney, then governor of the Bank of Canada, a rank outsider.

Well, Carney won the struggle, against the odds. But he was given a strong internal push by George Osborne, the UK chancellor of the exchequer, in the same way as Osborne is orchestrating the anti-Brexit campaign. If the ‘remain’ vote wins it, then the odds will favour Osborne taking over from Cameron before the next general election in 2020.

William Keegan is Senior Economics Commentator at The Observer and a member of the OMFIF Advisory Board. This is No. 5 in the series.

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