Investors around the world just bet billions on British polls.
“A rally in European stocks Monday propelled the regional benchmark to its best daily percentage performance in nearly 10 months after polls showed support for the U.K. remaining in the European Union gaining ground,” MarketWatch proclaimed Monday.
It’s a fascinating scenario for a number of reasons.
First, some scholars have been contending that election prediction markets forecast outcomes more accurately than polls.
By and large, the prediction markets they analyze involve small bets. These had billions at stake.
These “real” markets merely followed the polls.
That won’t come as a surprise to Professors Robert Erikson and Christopher Wlezien, whose astute analysis of U.S. elections found betting markets simply reflected the polls, but with slightly less accuracy.
The infamous 1948 election stands as a classic example. Late polls had Thomas Dewey defeating Harry Truman, as did the Chicago Tribune. Investors followed right along, giving Dewey almost 9-to-1 odds of victory.
The “market” followed those polls into ignominy.
The crowd in the market had no more wisdom than the — not very wise — polls of that time, though the Erikson-Wlezien conclusions hold, more recently, as well.
Secondly, this substantial European market rally followed relatively small poll blips.
On June 13, YouGov reported the “Leave” campaign with a 7-point lead. Three days later it gave Leave a 2-point margin, and by the next day the poll had the “Remain” side ahead by 1. A second poll, by Survation, gave Leave a 3-point edge.
Put these results in context, though. YouGov’s latest survey, on June 19, put Leave back in the lead by 2, and as of Tuesday, its model projects Leave winning by 2.
More broadly, six of the 10 polls in the last week put Leave ahead, while four gave Remain the edge.
Even the poll averages diverge. As of Monday, The Telegraph’s poll of polls pegs Leave’s lead at 4 points, while The Economist’s gives Remain a 1-point edge and the Financial Times’s aggregation posits an exact tie.
A tick-tight tie is the best one can say about the polls. The billions risked on a few points’ movement one way or the other in the polls is truly breathtaking.
Third, one must add to the mix the recent unreliability of the British polls. In the last election, they had Labor and Conservatives tied, only to find that the Tories won by 7.
Most British pollsters have taken considerable steps to avoid a repeat of that fiasco.
One of the suggestions I offered here was to include the number of undecided voters, who were ignored by most U.K. pollsters. Though doubtless offered up by others as well, most of the British pollsters are now doing so and showing around 10 percent undecided.
One firm is trying to deal with undecideds in a way that may create unintended consequences. Before the vote question, it asks respondents a series of questions about the EU and uses those results to allocate the undecideds. It is possible that these initial questions bias the subsequent results. This survey gives Remain a larger lead than any other.
The main conclusion of the postmortem, however, was that samples did not accurately reflect the electorate — a lesson not fully incorporated by pollsters. Though small in numbers, voters in Northern Ireland and Gibraltar can participate in this election but are not polled. Surveys in Gibraltar itself suggest more than 90 percent support for Remain.
Finally, my own guess (we have no polls on the subject): With the polls even and a meaningful undecided, I’d give Remain the advantage — not because of any one survey, but rather because of Nobel Prize-winning economics.
Professors Daniel Kahneman and the late Amos Tversky famously demonstrated that losses loom larger than gains.
The potential losses from Brexit are more likely to be determinative than the potential gains, giving Remain the edge.
Mellman is president of The Mellman Group and has worked for Democratic candidates and causes since 1982. Current clients include the minority leader of the Senate and the Democratic whip in the House.