BREXIT: Risk, Uncertainty and Ambiguity | An Interview with Prof. Roy Batchelor, 6 July 2016
Read on for an interview with Professor Roy Batchelor, Cass Business School, and an IIF Director:
Q. Professor Batchelor, your subject area is forecasting, with a focus on financial markets. There seems to have been a major failure to forecast the Brexit vote, and now financial markets in the UK are in turmoil. What is going on?
A. It is true that once again the opinion polls have let us down. More interestingly the betting markets – which are normally more reliable since people are putting their own money on the line – appear also to have let us down.
There has been an inquest into this, and it seems that the number of bets for Remain and Leave were roughly equal, but – consistent with their very different voter demographics – the size of the typical Remain bet was about five times the size of the typical Leave bet. So the bookies had to set odds of 4 to 1 against Brexit. But all this meant was that Leave supporters had less money to burn.2, 3
However, even if the vote had been predicted, we would still see a lot of negative sentiment about the future, and volatility in the stock market. The alternative to EU membership was never spelt out. We are suddenly in a world of unquantifiable uncertainty, rather than measureable risk.
To read the full interview, click here.