Vigorish Times and hedging bets

It’s election eve and one wonders about the outcome of #GE2015. I have been drawn to two analyses. Both mildly mad in their own ways.

First, the generally wonderful electionforecast.co.uk came up with a zero probability of either the Conservatives or Labour having a majority. I am sure their models show that, and for sure on all the evidence that is by far the most likely outcome, but ZERO chance? The odds are small but not zero.

Screen Shot 2015-05-06 at 17.26.40

In the real world of the oddschecker.com, the odds are a bit more to my taste:

Screen Shot 2015-05-06 at 17.33.32

Second, we find Michael Savage, chief political correspondent of The Times, coming up with some fascinating “likelihood ratings”. His article last Saturday is the ultimate hedging of bets. He considers 12 possible outcomes: Labour majority, Conservative majority, and various minority governments, coalitions, and even a quick second election. The article is here (on subscription) and the pdf of the graphic here.

There are three variants of a Conservative minority government (involving combinations of LibDems, UKIP and DUP) that have ratings of 5/10, 4/10 and 1/10. So, adding them together that makes it certain that we will have a Conservative minority government as it adds to 10/10.  Phew, that’s simple.

But hold on, the combined odds in that graphic add to nearly 30/10. I really don’t know what that means.

We are all used to the concept of vigorish, cut, take or overround. It’s the way that bookmakers and casinos make their money. The sum of odds they offer on any bet or wager, in a family of bets, add to more than 1. Typically a bookmaker on a horse race or football match will have their odds (or likelihood ratings) adding to about 1.2. Some forms of gambling have higher totals, some much less (for example roulette has only an edge of 1.027).

There are many other such odd examples of odds around this election but these are perhaps the most extreme.

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