Betting on Brexit

I’ve been thinking some more about Brexit possibilities, and I’ll try to write something on the topic in the next few days. (The Financial Times has a nice report on the latest manoeuvrings.) But for now I wanted to just draw attention to what the betting market is saying.

At Sportsbet today, you can bet on whether there will be a no-deal Brexit before the end of this year. “No” – glossed as “Withdrawal Agreement is ratified, Article 50 extended beyond 2019 or Article 50 revoked” – is offering $1.45, or 20-9 on. “Yes” (“UK leave the EU in 2019 without Withdrawal Agreement in place“) is $2.63, or about 13-8 against.

The implied probabilities from those odds are 64.5% “No” and 35.5% “Yes”.

Obviously, you can argue about how reasonable those are. For what it’s worth, my view is that they’re probably fairly close to the mark. But even if they’re some way off, the point is that they represent how punters are currently estimating the chances.

Now, however, look at another betting option: in what year will Boris Johnson be replaced as prime minister? The clear favorite is 2022 or later, at 5-4 on. The next most popular is 2019, at 3-1, followed by 2020 at 4-1 and 2021 at 15-2. That’s a 49.5% chance of him staying until 2022 or later and only 22.3% for departure in 2019.

You might not be surprised to learn that I find those odds unbelievable. But I also think they’re wildly inconsistent with the first set.

If, as the punters think, “no-deal” doesn’t happen this year, how is Johnson supposed to survive – till Christmas, much less to 2022?

Johnson’s strategy seems clearly directed to a no-deal exit on 31 October. If parliament manages to stop that happening – and I think it can and will, although it’s no certainty – I’m at a loss so see how that will not also involve removing Johnson from office, either as a means or as a fairly direct consequence.

Johnson is there to deliver Brexit; that’s his cause. If he’s prevented from achieving it but remains in place, surely he would demand an early election – which the opposition would support. And either he would win it, in which case he would have a mandate for an immediate no-deal, or he would lose and therefore be out of office.

As far as I can tell, the sizeable fraction of punters who say Johnson will survive but no-deal won’t happen must be thinking that either (a) he will secure a new deal with Brussels and get it through parliament or (b) he will persuade parliament to approve the existing deal negotiated by his predecessor, Theresa May.

Readers can judge for themselves how likely either of those is, but to me they seem extremely improbable. In no way can they jointly anchor a probability of more than 40%.

That seems to create an arbitrage opportunity if anyone wants to put money on both no-deal Brexit and a 2019 Johnson departure. I couldn’t bring myself to do the first, but I’ve risked $100 on the second. (If you choose to follow my lead, please bet responsibly.)

I also put a few dollars on Dominic Grieve as the next prime minister, at the rather generous odds of 50-1. I don’t think he’s the most likely, but since he’s clearly one of the key movers in trying to create an anti-Brexit government of national unity, I think he’s a better chance than those odds suggest.

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