Harry Clarke ponders whether to bet $1000 on Labor:
If Labor did win I would net about $700 which would buy me 4 dozen 2004 Kalimna shiraz and would yield me a-once-weekly decent bottle of plonk for almost a year. … If Labor lost I would lose $1000 but gain the utility of having the party I support electorally in power for another term and being able to avoid several years of comradely triumphalismÂ in the blogosphere.
If you believe that the betting market is efficient, then one reason you might want to bet is as a form of insurance. In that case, you should bet on the party that you want to lose. In the last election, one of my Labor-supporting colleagues followed Harry’s reasoning – placing a betÂ on Howard so that he could drown his sorrows when the Coalition won. Â
But another view is that you should move money to the state of the world where its marginal benefit will be higher. So if you are a die-hard Coalition (Labor) supporter, the wine will taste better in a world where Howard (Rudd) is PM.Â To see how this might work, imagine that there are two possibleÂ worlds – oneÂ in which Rudd is PM in 2008, andÂ one in which Howard is PM inÂ 2008.Â If you’re betting to get more out of your marginal dollar, you should set things up so that you have more money in the possible world that you would prefer to live in. On this basis, you should bet on the party that you want to win.
(Of course, all this assumes that the betting odds are an accurate reflection of the true probabilities. Poll-addicts would presumably behave differently. An easy way to test whether journalists and commentators really believe their ownÂ polls is to ask them whether they’reÂ now bettingÂ their life savingsÂ on Labor.)