From: <Saved by Microsoft Internet Explorer 5>
Subject: f2 News Store
Date: Fri, 19 Dec 2003 10:38:56 -0800
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            <H2>Lies and statistics</H2>
            <DIV class=3Dgrey>Author: Justin Wolfers and Andrew =
Leigh<BR>Date:=20
            19/12/2003 19:24:00<BR>Words: 593<BR>Publication: Financial=20
            Review<BR>Section: Comment Opinion<BR>Page: 71<BR>Source:=20
            AFRBreaking<BR></DIV></TD></TR>
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          <TD>
            <P>How likely is Mark Latham to win the next election? Early =
polls=20
            point to a real chance of success; various pundits describe =
him as a=20
            risk.</P>
            <P>To parse out honeymoon effects from real effects, we need =
a more=20
            reliable indicator than the polls - one that helps reveal =
Latham's=20
            true potential in the 2004 election.</P>
            <P>In an article published in the <I>Australian Journal of =
Political=20
            Science</I> last year, we argued that betting markets =
provide such=20
            an indicator. In the 2001 federal election, the daily odds =
posted by=20
            Centrebet, Australia's largest private bookmaker, predicted =
voting=20
            patterns far better than any pollster.</P>
            <P>By forcing punters to put their money where their mouth =
is, we=20
            learn their true feelings. And with powerful financial =
incentives in=20
            play, the betting market aggregates information across the =
nation's=20
            political pundits, insiders and informed gamblers.</P>
            <P>According to the betting market, Latham was a sound =
choice for=20
            the ALP. That Simon Crean's number was up was clearly =
reflected in=20
            the odds: he had drifted in the betting, with the =
probability of a=20
            Labor victory in the next election falling to 28 per cent =
just=20
            before his resignation.</P>
            <P>These odds remained unchanged when Crean announced his=20
            resignation, indicating that the ABC slogan ("Anybody But =
Crean")=20
            was not supported by the betting market.</P>
            <P>Following Latham's elevation to the leadership, many =
press=20
            pundits initially thought that the ALP caucus had pulled the =
wrong=20
            rein - so too did the bookies, letting Labor's odds drift =
further to=20
            a 25 per cent chance of winning.</P>
            <P>But it seems that the punters disagreed, and there has =
been=20
            nearly $20,000 bet on Labor since, with the latest odds of a =
Latham=20
            prime ministership improving to 33per cent (about the same =
as John=20
            Howard's odds six months before the 2001 election).</P>
            <P>Centrebet's Gerard Daffy admitted that "we got it wrong", =

            suggesting that Latham "has been fairly impressive to =
date".</P>
            <P>The betting odds can also suggest what would have =
happened under=20
            Kim Beazley. If the pre-ballot probability of a Labor win =
(28 per=20
            cent) reflected an average of the election-winning abilities =
of=20
            candidates Beazley and Latham, we can infer from the fact =
that, with=20
            Latham as leader, Labor is a 33 per cent chance, and that =
Beazley=20
            would have been about a 23 per cent shot.</P>
            <P>According to the punters, the Labor caucus backed the =
more likely=20
            winner.</P>
            <P>As for opinion polls, our research suggests that =
long-range polls=20
            are generally so inaccurate that they are best ignored.</P>
            <P>While polls taken a year before an election have =
predicted vote=20
            shares with an average error of about 5 percentage points, =
simply=20
            guessing that previous election's results will recur is =
about as=20
            accurate, and guessing that the election will be close =
actually=20
            yields more accurate predictions.</P>
            <P>So if you want to predict the outcome of the next federal =

            election, remember, the current favourite in the election=20
            forecasting stakes isn't the polls - it's the bookies.</P>
            <P><B>Dr Justin <FONT color=3D#0000ff><B>Wolfers</B></FONT> =
is an=20
            assistant professor of political economy at Stanford =
Business=20
            School.</P>
            <P>Andrew Leigh is a PhD student at Harvard's Kennedy School =
of=20
            Government.</P></B></TD></TR>
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