Those who do not learn from the past are condemned to repeat it, so they say. There is certainly a lot to learn from the 2010 election. I don't pretend to have a monopoly of wisdom (more like a flake in a very fragmented market), but here are some of the things that I learned about political betting from the 2010 election :
1. Don't be afraid to do the obvious
For a long time, it looked as though the Tories were going to achieve an overall majority. Perhaps they should have. But by the time that the election campaign began, it was already going to be a tough call for them. They were not getting the leads in the polls that would guarantee an overall majority. Yet the betting markets stubbornly refused to acknowledge this. Even after the first debate, when the Lib Dems' support shot up and the polls pointed to a hopelessly hung Parliament with only three weeks to go, the markets remained odds-against a hung Parliament for another couple of days. I piled in - this was by far my biggest bet and was also by far my most lucrative. I greened out after the third debate, which David Cameron appeared to win, but made sure I remained as exposed as possible to the upside of a hung Parliament.
I do not claim any brilliance on this - quite the reverse, it seemed totally obvious to me. I was probably too hesitant in greening out. But I still made a substantial sum of money by opposing the preconceptions of the rest of the market which was too slow to recognise when it was out of date. This leads me onto my next point.
2. There is no special wisdom in the market
Money talks and money should be respected, but money can still be hopelessly wrong. Most political gamblers don't do as much research and testing as professional financial analysts. So there is probably more scope for uncovering errors to profit by than in the financial markets. It's always good to start with the belief that others are on the right track - assuming that your opponents are stupid is always a recipe for losing. But look for where assumptions may have been made. Those assumptions might be incorrect or out of date.
3. A lot of knowledge can be a dangerous thing
The constituency markets held especial dangers. Yokel has pointed out in the past how sometimes it is easier to bet with less information. I agree. It was surprising just how often the best of betters got caught out by their own pet constituencies. There has been much soul-searching among Scottish posters as to why the predicted seat changes didn't happen. Jack W was wrongly confident that Watford would fall to the yellow peril. Mr Smithson misread Buckingham and even in Bedford, he thought the Lib Dems might sneak up on the rails, where in fact they finished a distant third. I point this out just to show that the shrewdest commentators can be led astray even on home turf.
My most successful constituency bets were made by applying general principles rather than applying too much local knowledge. It's one thing working out that Labour would be about as popular as herpes in much of the country south of the Severn and the Trent, and it's another thing entirely trying to second-guess how this might interact with local constituency effects. Far better to look at generalities - is there an incumbent MP? has the constituency any tradition of voting for the challenging party? what is your expected regional swing?
The local constituency effect that is most important to look at is whether one of the parties has a seat-specific problem; for example, the Conservative party in Southport was publicly and utterly split. Occasionally, we get tells from inside: when the first Conservative candidate abandoned Brighton Pavilion, it seemed likely that they would struggle to take the seat. Similarly, when the incumbent unexpectedly retired in Walsall South, a seat that was on no one's radar looked very interesting (Labour retained it, but by a margin of under 2000 votes in a constituency that had returned a Labour MP with 58% of the votes in 1997). Hard news is worth following, but generic reports of excellent canvassing returns should be heavily discounted.
4. Think about what's driving prices: it might not be the underlying odds
It is easy to assume that betting prices are driven by underlying probabilities. Not so. What drives betting prices is the money that is placed. Betfair automatically works in this way and conventional bookies are going to want to keep their books balanced. The price ends up as the balance between two competing flows of money.
This is particularly important in something as emotional as politics. A lot of gamblers want to back their own horse. This means that prices can be quite seriously askew, particularly in constituency markets.
The particular danger arises where a party has considerable support but relatively few exciting betting opportunities. The odds on the Lib Dems and the SNP taking new seats were way too short in most cases. This was observable in advance (at least, I observed it). For every Redcar there was a St Albans, a Sheffield Central, a Newport East and a Bedford. The SNP didn't even have those meagre satisfactions.
The same effect could be seen in a localised way for the Tories. In Scotland, the Conservatives came nowhere close to justifying the odds in some seats. The challenges in Morley & Outwood and Exeter failed, though Antony Calvert did very impressively in Morley & Outwood. The emotional satisfaction of backing an upset against a particularly unpopular (with Tories) Labour minister drove prices out of kilter.
It is no surprise that many of the longer priced bets that came home were on Labour candidates. There's something very unheroic about backing a candidate to retain a seat. It's much more fun backing a candidate to win a seat. But fun doesn't equate to money.