Friday, June 24, 2016

Brexit: Exit the "Experts"

source: Burgercomite EU
"Surprise, surprise" - or should I say "shock, shock" - the citizens of Great Britain voted yesterday in majority to leave the European Union, and make Great Britain "great again", to paraphrase another slogan.

What was equally surprising was that all the self proclaimed "experts" were wrong in their predictions and forecasts: not only professional pollsters were wrong again - see for example last year's Scottish independence referendum or the continuous miscalculations of Donald Trump's wins in the US Republican primaries -, but also the British bookmakers and the financial markets. They all were unable to expect the unexpected.

Since the tragic murder of British MP Jo Cox last week, just a week before the Brexit referendum of June 23, the already very tight polls that had been edging towards Brexit, suddenly reversed and showed a majority for Bremain. On the night before the referendum, The Financial Times Brexit poll tracker showed a 48% - 46% Bremain majority.

FT Brexit poll tracker

The almighty financial markets in their wisdom also changed their tune on Monday June 20 as they rebounded after weeks of pessimism and down-markets and became upbeat till Thursday believing a Bremain vote was imminent, as described in Market Rallies as Brexit fears wane (CNN, June 20, 2016)

Then, UK's favorite pastime, betting, went crazy as it appears from this article in Business Insider,:

".....Brexit betting has now become the biggest market for any UK political event ever, with the number of bets reaching football World Cup proportions. Over £30 million has been bet in the referendum market so far, compared to £35 million bet on the 2014 World Cup....."

These bookmakers were increasingly pointing towards a Bremain, but they too flopped. The British daily, The Independent, explained why in its article EU Referendum: how the bookies got it so wrong:

".......Now, in a blog posted hours after the Brexit victory, Mr Shaddick (of Ladbrokes) has explained – as in fairness he had done earlier to The Independent – that bookies weren’t there to predict the outcome of an event. They just had to do their best to make money.  Or as Mr Shaddick wrote in his blog post: “The truth is that bookies do not offer markets on political events to help people forecast the results. We do it to turn a profit (or at least not lose too much).”  So if most of the cash went on Remain, as it did, bookies would have to follow the money and make Remain the favourites....."

Then there were experts such as Oxera, a leading economics consultancy,  that "gave an implied chance of Britain leaving the European Union of just over four in 10.......about as likely as Donald Trump receiving the republican nomination nine days before the Iowa caucus..." (Thank you very much.) In addition, the UK Political Studies Association surveyed experts (i.e. academics, journalists and pollsters) and found that 87 per cent of respondents said that the Bremain campaign is more likely to win with just five per cent believing the Vote Leave effort will be victorious. Also former CEO of British Telecom and connoisseur of European politics, Dutchman Ben Verwaayen said he expected that Europe would come up with a last minute solution - quod non- and that in the end the majority of the Brits would favor the benefits over the disadvantages of European Union membership. Lastly, even Brexit campaigner, UKIP leader and quintessential political expert Nigel Farage had it wrong when he conceded last night that the effort to take the UK out of the European Union had failed (too early and plain wrong.)

The coming days, weeks and months, there will be many lessons to learn from this Brexit referendum, but clearly one of them is the lack of reliability of so-called experts, and their inability to expect the unexpected, as the Greek philospher Hiraclitus once famously said. I believe it suffices to say that we have entered an era where more unexpected things are bound to happen: let's therefore be prepared for the unexpected and not rely too much on experts.

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