Update: Beating the Odds

What are the odds-makers thinking?

Working with the betting data from Tipos led me to think
that it was possible to "reverse engineer" the odds given by the odds-makers to
figure out the assumptions behind their choices.  Assuming that the were
working with the same data I was–recent public opinion polls–I attempted to
calculate the degree to which they expected parties to over- or under-perform
their polling numbers.  In practice, this means estimating the share of
opinion polls which show a party exceeding the threshold set for it by Tipos and
setting the threshold at the point where the share of polls in favor corresponds
with the degree of certainty required by the odds (as determined through the
risk-return ratio).  In other and less pointlessly complicated words, how
many more–or fewer–voters does Tipos think will turn out to allow it to make
money from the odds that it has set (these have changed slightly since I did the
calcuation, but in general the changes are strikingly small).

For the sake of simplicity, I have presented the results
of the reverse-engineering below.  They can be read this way:  For
SDKU the bet against ratio is 1.26 and the bet for ratio is 1.39.  This
means that if you expect fewer than 126 voters to turn out for every 100 who
state a preference for SDKU, it makes sense to bet against SDKU exceeding the
threshold of 13.5 set in the Tipos bet.  If, however, you expect more than
139 to turn out for every 100, then it makes sense to bet that SDKU will exceed
13.5.  It is notable that Tipos appears to be banking on positive ratios
for five parties.  It is also notable that these five parties also have
positive ratios in the Turnout Model.  (This is not surprising, since
despite its Capital Letters the Turnot Model not a very complicated model at
all, and one which relies on on easily discernible past performance.  It is
neither rocket science nor, in fact, much political science–though this does
not explain why the Slovak press continues to report poll results as if they
actually meant something in themselves.)  Only HZDS does not have a high
enough ratio in the Turnout Model to make it worth a positive bet.  In fact
the turnout model shows a ratio that is below the bet against threshold,
suggesting that either I or Tipos have made a big mistake.

Party Ratio of actual voters to poll supporters
party if you think
ratio is lower than:
Bet for
party if you think ratio is
higher than:
Ratio used in Turnout Model
KSS 0.93 1.03 1.38
SMK 1.03 1.09 1.08
KDH 1.02 1.04 1.13
HZDS 1.18 1.22 1.03
SDKU 1.26 1.39 1.42

At the same time, there are three parties that Tipos
appears to think will underperform.  These are to be read the same way:
Smer’s bet against threshold is .85 which means that it makes sense to vote
against Smer exceeding the 27% threshold if you think that only 85 voters will
actually turn out for each 100 who say they will vote for the party.  This
suggests bets for Smer and SNS, with SF’s ratio just on the line.  Here my
own numbers conform nicely with Tipos’s.

Party Ratio of actual voters to poll supporters
party if you think
ratio is lower than:
Bet for
party if you think ratio is
higher than:
Ratio used in Turnout Model
SF 0.74 0.80 0.80
Smer 0.85 0.87 0.80
SNS 0.91 0.97 0.82

This means that Tipos implicitly expects parliament
looks something like the following:

Party Vote Seats
Smer 27.4% 44
HZDS 14.5% 23
SDKU 13.5% 22
SMK 10.9% 18
KDH 9.6% 15
SNS 7.4% 12
KSS 5.1% 8
SF 5.1% 8


Party Vote Seats
Smer 27.4% 47
HZDS 14.5% 25
SDKU 13.5% 12
SMK 10.9% 23
KDH 9.6% 18
SNS 7.4% 16
KSS 5.1% 9
SF 4.9% 0

Why care what Tipos thinks?  No reason, really,
except that somebody there stands to lose a lot of money (and perhaps a job) if
the results are wrong.  If I had that burden, I might do a lot more to make
sure my answers were correct.  Or perhaps not.

Finally, it has been noted that I do not deal with Tipos
bets regarding turnout or the future prime minister.  In the case of
turnout, I have so little data that I hesitate to make a call (though
interestingly the assumptions of the turnout model do themselves incorporate a
turnout figure of 65%.)  I suspect that the turnout will not be below the
57% threshold set by Tipos, but I have no reason to offer the 61% degree of
certainty that it would require to make a bet. 

As for prime minister, this
is a question that takes the speculation beyond what I have described as level 1
(correct assessment of poll numbers), level 2 (correct translation of polls into
seats), level 3 (correct prediction how seats translate into coalitions) to a
level 4 which involves the correct prediction of whom coalitions choose as their
leader.  If my level 2 analysis is right, there is strong reason to think
that the next coalition must include Smer but I have not figured out a good way
of calculating odds for this.  At a gut
level, I would put it above 75%.  The question, then, is whether Fico would
allow somebody else to be Prime Minister?  Here my own bias may show
through:  regardless of any worthy programmatic goals of the party, Fico’s
enterprise in Smer has seemed entirely designed to elevate him to the seat of
power.  Since his dominance within the party is, for the moment, extremely
high, I cannot imagine that he would surrender the opportunity in order to make
a coalition or that others in his party would have the power to force a
compromise candidate for the premiership.  I hope I am proven wrong on
this, but here my doubt goes well beyond the standard required by Tipos. 
On the basis of likely coalitions, it is worth betting that Fico will be the
next prime minister, though I wouldn’t necessarily bet that he will still be
prime minister four years from now.

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