The betting market
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Recent betting market results
On this page I am tracking the betting market. During the first two years of this parliamentary term I aim to update the page at the first of each month.
How to convert odds to probabilities?
Most internet bookmakers use decimal odds. Decimal odds are what the bookmaker will pay if a particular outcome occurs. For example, on the 12th of August 2004, Centrebet offered the following odds in respect of the outcome of the 2004 Federal election:
- for a Labor win $2.60
- for a Coalition win $1.45
If you placed a bet under those odds for the Coalition, after the 2004 election you would have received $1.45 for every $1.00 you bet. The bookmaker’s decimal odds can be converted to probabilities quite simply:
probability = 1 / decimal odds
Bookmaker’s Coalition win probability = 1/1.45 = 69%
Bookmaker’s Labor win probability = 1/2.60 = 38%
To make a profit the bookmaker effectively over-estimates the probability of each event occurring. As a result, the total bookmaker’s probability will exceed 100 per cent. The amount by which the total probability exceeds 100 per cent is known as the bookmaker’s overround. If we take the example above.
total probability = 1/1.45 + 1/2.60 = 0.690 + 0.384 = 1.074 = 107.4%
Overround = 7.4%
The bookmaker’s job is to choose odds so that no matter who wins, the total payout is less than the total amount bet. After each bet is placed, the bookmaker may adjust the odds to attract bets that will ensure the contingent payout on every possible outcome is less than the total amount bet. In our example, if the bookmaker balanced his book correctly, he or she would have made around 7 per cent of the total pool bet.
In seeking to balance his books, the bookmaker is aggregating information from the betting public. It is this aggregated information from election betting markets we use to estimate the current probabilities of a particular election outcome (from the perspective of those people willing to bet money on the event). However, we need to make an adjustment for the overround, so that the total probability sums to 100 per cent.
Coalition win probability = Bookmaker’s Coalition probability / Total bookmaker probability
= 0.690 / 1.074 = 64%
Labor win probability = Bookmaker’s Labor probability / Total bookmaker probability
= 0.384 / 1.074 = 36%
This can all be simplified with decimal odds:
Coalition win probability = Labor odds / (Coalition odds + Labor Odds)
Labor win probability = Coalition odds / (Coalition odds + Labor Odds)