what you see depends on where you are standing

Opening Shots

Aintree 14:32 Acey Milan 9/1

The bookmaker gains a significant first mover advantage because he gets to frame the first betting market on the event. Framing is important because it serves to alter the weight of particular considerations making some more salient than others. It messes around with peoples expectation template. The frame is the double bind par excellence - to attempt to escape it is merely to acknowledge that that it exists and that it is consciously or unconsciously impacting upon ones decision making process. This is what the sleight of hand merchants that trick around with the early morning betting markets on the betting exchanges know. The betting market prices that they conspire to put in place are simply there to provoke a powerful visceral response - sure would you look at the money for that Aidan O'Brien runner - that must be the lads at play..... Stepping back and thinking about how you feel emotionally about that price enables you to take some time out and to consider exaxctly what it is that is going on - thus, at the very least reducing the possibility that your reading of the situation at hand will be filtered through a biased appraisal process.

Because betting market data is quite often sparse, ambiguous and corrupted by noise, traders constantly face problems of inference and decision making under uncertainty. Traders on betting exchanges do not act on the basis of “rational expectations,” but rather on the basis of “intersubjective expectations.” - they are looking to each other for signals as to what should do next. Accordingly, until the event closes, betting market prices on betting exchanges do not reflect “correct” pobabilities based on all known current information, but rather they are simply the product of a shared expectation that the betting market price is going to be moving in a particular direction. Without really being aware of it, people conform, adapt, assimilate and transform themselves into collective beings - buying into the dominant narrative. It is this dovetailing of motives that contributes to persistent mispricing in online betting exchange market prices - many of which simply go uncorrected.

Traders, regardless of who they are or their degree of intelligence find themselves, more often than not, in a bounded set of characteristic states. This set of states feeds into and dictates behavioural patterns, and ultimately sets to characterises the sort of trader that we actually are when we find ourselves confronted with particular situations. In any rapidly evolving market involving risk (noisy and ambiguous), there are three things that are generally in short supply - time; money and expertise. These three things act as significant constraints upon the decision making process. Time impacts upon everybody, money on some of the participants and expertise is something that is in short supply for almost everbody. These three factors play the greatest part in determining how it is that people choose to act. It is a given that cognitive systems that are placed under extreme pressure and that cannot deal with stress very well cannot estimate probabilities very well because of a failure to align internal states (our neuronal architecture)with the external causes of sensory input. and we implicitly claim that we have a privileged access to the reality that makes our arguments objectively valid. from doubt to contentment

Latent Thoughts

Nothing More Than A Kind Of Best Guess

It is widely posited that our consciously established priors contribute to the construction of a mental framework that we then utilise for evidence gathering, about our environment and our place within it and about how we believe that it is going to evolve in the future. However, given that our priors are always subjective, partly unconscious and mediated and sculpted through associative memory, the process of evidence gathering can only ever represent in effect, a kind of best guess. There is actually no such thing as a direct expression of the facts, because we are always scanning the environment on the back of incomplete information. Our evidence gathering processes becomes derailed because despite all of our best intentions we can never be immune from cognitive biases: we wrongly assume, for example, that we are better at trading than everybody else and that we are actually capable of bringing something new to the table; we assume that we are capable of reading the minds and intentions of others, and that we can tell the future. We also assume, because we have read our Kahneman that we are capable of integrating rational and emotional thinking so as to reach decisions that are perfectly adapted to the context that we find ourselves in. Many traders are guilty of overrelying on heuristics that generate systematic biases in their perceptions of risk. They seek out and assess evidence in biased patterns that serve to reinforce the beliefs that they already hold.

The classical notion that most traders in betting markets are Bayesian agents who religiously convert their prior beliefs into posterior beliefs in accordance with Bayes’ rule has long been discredited. Rather, we now see them for what they are, as having heterogeneous beliefs and being imperfectly rational. Indeed, it has been demonstrated that traders who are more analytically sophisticated, better educated or more numerate in their outlook are in fact often the ones that are most prone to making distorted inferences – rationalising away new evidence and compartmentalising knowledge to protect a highly valued (but misplaced) hypothesis. One only has to recall the predictions of these various geniuses as regards the 2016 US Presidential election (confirmation bias and motivated reasoning in operation par excellence).

Probabilities' reflect a persons' subjective degree of belief in an event outcome, given the information that they hold at a particular moment in time, and the manner in which they process that information, vis a vis their mood, unknown information, the behaviour of others and the extent to which they are influenced by cognitive biases, emotions, their pre-existing beliefs and the degree and extent to which they have succumbed to (ideological) motivated reasoning. It comes as a great surprise to many, not least the popular press that the assessments of probability, produced by laymen and experts alike, are often inaccurate, uncalibrated and incoherent.

Reductio ad absurdum: In the 2016 US Presidential Election The New York Times, which had been rightly lambasted for its extermely jaundiced coverage of the election, embraced the prediction market model itself during the election, happily advertising a model that ascribed an 86% probability to a Clinton presidency. The move backfired - many of Clinton's voters assumed that the election was in the bag and chose to stay at home on election day - power and responsibility.....

The New York Times ascribes a 86% implied probability to Hillary Clinton.

After Donald Trump announced on twitter that he and the first lady, Melania Trump, had tested positive for coronavirus, the implied probability that he would win the 2020 presidential election was 36% - at which point the market was rather bizarrely suspended in order to protect customers with unmatched bets in the market .............................Some argue, including one of the regular authors on this website, that Betfair’s response to the news that Donald Trump contacted coronavirus has served to usher in an new era of faux trader confidence and the moral hazard that Betfair will always backstop traders who have been caught with their pants around their ankles. Thus, forever distorting betting market risk and real price discovery and contributing to the belief that these exists a group of liquidity providers who are afforded a special status. Funny that none of the traders that had their trades cancelled by Betfair are squealing too loudly.

Despite the recent easing of financial market nerves about the outcome of the election, it remains a distinct possibility that we will not see a result on November 4th. There are three distinct scenarios: counting backlogs delay the result - very likely given the large number of absentee and mail-in ballots; a dispute breaks out about ballot validity leading to a recount at state level; Trump contests the election and escalates it all the way to the Supreme Court, in a rerun of Gore vs Bush - likely.

To date the betting market has essentially ignored a note from JPMorgan's top quant guru Marko Kolanvoci, which, highlighting the fact that social media sentiment is a leading indicator to polling, suggests that Trump may actually be ahead of Biden in the key battleground states of Arizona, Florida, and Georgia. At the time of the publication of the note - October 21 - the implied probability of a Trump victory on Betfair is 32% - in a nutshell, Marko Kolanovic the man who can allegedly move markets with a single report has failed to move the betting market and as things stand looks like ending up with a significant amount of egg on his rather large face.

As regards the future direction of the US stock market a blue wave will lead to concerns about the impact on the tech and pharma sectors, but will be seen to benefit regional banks (KRE) and the constituent members of the Russell 2000 (IWM). Duration is the primary hedge for those betting on a contested election, with some shrewd traders also betting on dollar strength in the event of such a happening.

OutcomeImplied Probability

Source: Bettingmarket.Com Analysis. 16/10/2020.

Show me a man who claims he is objective and I'll show you a man with illusions. Henry R. Luce