So for a change the opinion polls seem to have got it right. I’m talking about the just-concluded elections in the UK here, which has returned a hung parliament. The Tories have fallen just sort of a majority (in Kannada we’d call it “AJM“). It’ll be interesting to see how a government will be formed now.
Now, the thing is that the opinion polls got it right. While the Tories had started off with a big lead at the time the elections were announced, opinion polls over time showed that the race was getting a lot tighter. I’d piggybacked on the opinion polls to conduct my own analysis which got published in Mint.
Having shown off that I’d made the prediction correctly, let me get to my hypothesis of why the opinion polls got it right. Opinion polls in the UK have a greater chance of being right because because betting is legal here.
Howzzat! I'd predicted 3-4 days back, based on opinion polls that a hung parliament is likely in the UK! https://t.co/cWeoJ6jfzF
— karthik (@karthiks) June 9, 2017
I was walking around Central London yesterday when I saw this poster outside a betting shop.
Because betting is legal in the UK, betting houses take bets on just about anything, including the results of elections. The way betting works is that the betting houses make markets. They present odds for each side of the deal (in this case, let’s say Tory win, Labour win and hung parliament), and whenever a punter walks into the shop and places a bet, it’s the house that’s taking the opposite side of the bet.
What this implies is that the house better get the odds right, otherwise the difference in their odds and the actual results can wipe out the shop. And how does the betting house know where to set the odds? For something like an election, they rely on the opinion polls.
If the opinion polls get it wrong, the betting houses can end up losing a lot of money (like they evidently did last year during the Brexit vote which most pollsters got horribly wrong). So there is a legal entity which has real skin in the game in opinion polls being right.
I’m not sure of the ownership of the opinion polling companies here in the UK, but I won’t be surprised if they make plenty of money by selling their results to betting shops (at a more granular level than what they make public). And given the intense competition among pollsters here in the UK (at least 15 different agencies conducted opinion polls ahead of yesterday’s elections), there is a real incentive for a pollster to get it right – get it wrong and the betting houses might take their business elsewhere.
In case betting wasn’t legal (such as in India), polling agencies wouldn’t be able to legally sell their results to betting houses and punters, and their markets would be limited to media houses. Media houses don’t have that much of a skin in the game in the polls – their profits don’t depend on getting polls right as much as the profits of betting houses. And pollsters would have less incentive to get the polls right.
Now, howzzat?