Bettors 'Prediction' Market Bombs on Greek Referendum Call

There is an  idea in some economics circles, which sadly include some Austrian school economists, the idea being that bettors somehow give a sound indication on how an event will develop, with an implication that bettors somehow have better knowledge than the general public. I have long objected to this view.

In my view, all that betting markets do is reflect the views of the bettors. In some cases, the bettors can be well informed, in other cases they may not have a clue.

When anyone says to me, "The betting markets say X is going to occur/win." I don't pay much attention.

I would need to know who is betting and what kinds of swings have occurred in the markets when different bettors came in. Of course, this is not knowable by just looking at the bets. You can see movement but you don't see who is causing the movement. I might pay a bit more attention to an odd swing that goes against conventional thinking, which suggests there is either an idiot with a lot of money pushing the market or someone with some kind of inside information is placing a knowledgeable bet, but, from the outside, you can't know for sure who is moving a market. When trying to understand a future development, such swings in a market must be noted, but nothing more. They are not an absolute indicator--far from it.

For the most part, betting markets simply reflect prevailing opinion without any special insights.

The results of the recent Greek referendum are a perfect example of this. Betting was heavily skewed in favor of a "Yes" vote on the referendum, which of course was as terrible a bet as you could make.

Zero Hedge ran a story before the referendum vote on Wednesday July 1 that included this:

For The Bookies The Referendum Outcome Is Clear: Paddy Power Pays Out For "Yes" Votes

Submitted by Tyler Durden on 07/01/2015 07:53 -0400

The market may be scratching its head over the outcome of this Sunday's Greek referendum, soaring on the faintest trace of good news such as the report of Tsirpas' capitulation this morning then reluctantly selling off as the euphoria is rejected, but for the bookies the outcome is now clear: earlier today Ireland's Paddy Power announced it has "paid out five figures" in winnings to gamblers who bet that Greece will back a July 5 austerity referendum that may seal the nation’s future as part of the euro region.

Cited by Kathimerini, Paddy Power - Ireland’s largest bookmaker - said in an e-mail in Dublin on Wednesday that "Despite some polls suggesting it’s neck and neck, over the last few days we’ve seen enough to be convinced. In a race with two potential outcomes we’ve seen over 85 percent of money go one way and that’s massive."

It adds that gambling companies routinely pay out early on sporting events when they regard the result as a foregone conclusion, in part because it draws publicity and in part because gamblers often recycle winnings into other wagers.

 -RW