- Before the Brexit the London Bookies (i.e. Ladbrokes, Betfair) gave 1/6 for REMAIN and 5/1 for LEAVE
- For the non-europeans: 1/6 means for 6 pounds bet you receive 1 pound as winnings if your bet was correct. 5/1 means for every pound bet you receive 5 pound in winnings if your bet was correct.
- During the voting process until the voting stations were closed REMAIN was up to 1/10.
- After Voting Stations were closed and about 6.8% of votes were counted LEAVE still only got 4/7. UK Telegraph poll coverage was 48.2% Remain/51.8% Leave
- After about 75% of the votes counted REMAIN was given 10/1 and LEAVE was given 1/33. The Bets were supposed to be valid until 05:00am UK time.
UK Telegraph poll coverage was unchanged.
- After about 77.5% of the votes counted the betting was cancelled and the London bookies did not accept further bets. UK Telegraph poll coverage stayed fixed at 48.2% Remain/51.8% Leave.
This shows beyond doubt that
- market participants always choose a pre-fixed opinion to position in markets even if the probability is close to 50/50.
- market participants are irrational because it is difficult to overcome human behaviouristics, which is abandoning a previous opinion, especially if the opinion is black/white, in/out, leave/remain, if data points to simple 50/50 coin flip probabilities.
- market participants loose money, because they overvalue available knowledge/interpretation possibilities of data that goes in line with their opinion and undervalue available knowledge/interpretation possibilities of data that goes contrary to their previous opinion.
- It is this VALUE BIAS, stemming from a pre-fixed opinion that leads to market participants CONSCIOUSLY IGNORING DATA THAT GOES AGAINST A PRE-FIXED OPINION.
It is also this BEHAVIOURAL VALUE BIAS that leads to buying/selling activity with implied values above/below 50% probability realizing that value in the future.
Lesson to learn from Behavioural Economics: if the probability for realizing a value proposition is close to 50/50, but market participants try to openly "nudge" you into taking a side of the value proposition that could be termed "contrarian" by economical standards, you are extraordinarily likely to realize value by taking the "contrarian value proposition" as probability is in your favour due to a valuation bias from market participants that induces them to keep the misvaluation until such time it is almost impossible (too late) for the market participants to correct their value bias and will lead inevitably to losses for such market participants.
The above is the behavioural framework, why 90% of market participants loose money to only 10% of market participants.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.