Insiders or hedgers?

Catallaxy points to a Sydney Morning Herald report on Australian Labour Party insiders betting on the opposition Liberals in a few key seats.

SENIOR Labor figures have placed significant bets on the outcome of the federal election, with some punting against their own party. A major betting agency said bets had been placed on members of the opposing team to win marginal seats in NSW and Queensland.

Centrebet primary analyst Neil Evans said: ''I can't tell you who but I can tell you this: these are people very high up betting on some of the critical seats and I can tell you they don't always stay faithful to their party - they swap sides.

''They are well-known Labor figures and associates that are punting on these seats. A lot of Labor-connected money has been backing a Coalition win in marginal seats and, to a lesser extent, the Coalition has been doing the reverse.''

The Sun-Herald understands the figures include parliamentary staffers, advisers and senior party officials.

It would make sense for parties to hedge against losing key seats; it's not much different than buying life insurance on your spouse. You're not betting that she'll die, or working to that end; rather, you're doing a small bit to transfer income from a happy state of the world to an unhappy one. Of course, not everybody sees it that way:

Independent senator and anti-gambling campaigner Nick Xenophon said: ''In the same way in the AFL officials and players can't bet on the other team, the same rules should apply for election betting. We have those rules in place so matches aren't thrown and, when it comes to a democracy, the stakes are much higher and therefore the standards should be accordingly higher.''

Today the senator will call for all politicians, party officials and advisers to be banned from election betting.

I guess Jon Kyl has an antipodean twin.

Suppose you cared only about how much money you could extract from politics. Would you: a) throw an election and get a few hundred thousand in betting wins; or, b) win the election, then (discreetly) auction off favours or use the incumbent position to run all kinds of much better insider trading positions? I mean, if you're on the Treasury benches and you're willing to use inside knowledge from Cabinet to trade in the leadup to a budget, and if you're also willing to use that budget to make sure your bets pan out optimally, there's going to be at least an order of magnitude difference between your expected gains from (b) over (a).

With the ALP at its longest price in the betting markets since Prime Minister Julia Gillard deposed Kevin Rudd, bets of $10,000 at $3.25, $7800 at $3.10, $5000 at $2.90 plus scores of other small bets were recorded for a Tony Abbott victory.

Election betting is on track to reach record levels across the country. More than $1 million in head-to-head bets have been placed with Centrebet alone.

I've put a few hundred onto Centrebet, but on Labour, to lay off some risk from a heavily Liberal position over at iPredict. Centrebet now has Labour on 1.54: $0.6494. That's more than Labour's probability of winning because Centrebet takes its cut as a wide spread between Labour and Liberal. iPredict has a nice bid on Labour sitting at $0.685, so $0.315 for a Liberal win. So $0.9644 buys you a contract worth $1 in 3 weeks' time: a 3.7% return over the period. Decent if annualized, but at small stakes, not worth the hassle.