Betting favorites in horse racing win about 30% to 35% of the time, which is a high degree of accuracy given that the average field size is 7.38 runners per race. This varies by track, type of race, the number of entries, and other handicapping variables. 

In the 2021 NFL season, favorites won 64% of 272 games, not considering the point spread.  Over the past five years, NBA favorites won regular season contests 67% of the time.

But what about political elections?  In predicting event outcomes, sports or elections, I’ve always watched what people do with their money rather than what they say.  How did this heuristic work out in the November 2022 American elections?

Betting markets on political elections work as follows (using a direct quote from one of the betting websites): “Each share is priced somewhere between $0.01 and $.99 apiece.  If the event comes true (the bet taker) rewards the holder of yes shares with $1 less fees.”  So, if candidate X has a value of, say, $.75 and wins the election, the bettor wins $.25 per share less fees.

On the day prior to the November 2022 elections, the Cook Political Report listed 23 of the 35 Senate seats up for election as being “solid,” meaning that each seat was judged to be safe for a Democrat or Republican candidate.  Indeed, these seats went 100% as forecast and bettors had the winner as the heavy favorite in each and every race.

Cook listed 8 of the 35 seats up for election as “likely/lean.”  These seats were projected as being in play but one party had the clear advantage.  All of these seats went as forecast and bettors favored the ultimate winner in every case.

This left 4 of the 35 seats in Cook’s “tossup” category.  One of these seats (Georgia) is still unresolved and will be decided in a runoff in early December because no candidate received 50% of the vote.  On the day before the election, bettors favored the Republican candidate in Georgia (64 cents) to his Democratic opponent (41 cents).  In fact, the Democratic candidate garnered more votes.  In two other states (Nevada and Pennsylvania), bettors turned out to be wrong, favoring the losing candidate.  Finally, bettors split evenly on the Arizona race, with half favoring the Democratic candidate and half favoring the Republican. 

Removing the Arizona race, where the bettors split, and the Georgia race, which is unresolved, bettors were correct on the outcomes of 31 of 33 Senate seats for a winning percentage of 94%. 

How did bettors do in wagering on who would win control of the Senate and House of Representatives?  In the Senate, bettors favored Republicans (68 cents) over the Democrats (37 cents) and were wrong.  At best Republicans can have a tie in the senate at 50 votes for each party if the Georgia runoff goes their way, but Democrats would have control because the (Democrat) Vice President casts a vote to break tie votes on legislation. In the House of Representatives, bettors favored Republicans (90 cents) to Democrats (6 cents) and were correct in the outcome. 

Bettors would have won by choosing the favorite in the vast majority of Senate races, but the payoffs for doing so would have been small.  However, in the tossup races, bettors fared poorly.  While bettors were right about Republicans taking control of the House of Representatives, it was a closer outcome than the public opinion polls and the wagering predicted.  And bettors favored the wrong horse in the Senate.

“Follow the money” is often a reliable guide to how an event will turn out.

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