Opinion Polls, Financial Crashes and Groupthink

The election is done and dusted, but many interesting questions remain. Was there a swing to the Conservatives at the very last minute, or was it indeed possible to foresee the victory in advance? Snippets are emerging which suggest that the electorate had made up their minds well before polling day. Rod Liddle, the entertaining columnist, visited his home area of Stockton on Tees a few weeks ago. Liddle, a Labour-inclined man, walked round the highly marginal seat and actually spoke to people. He wrote that it did not feel like Labour would win.

The website Labour Uncut, a place where Blairites huddled to escape persecution under the Miliband terror, carried a fascinating piece on 2 May. Local political parties are entitled to inspect the postal votes as they arrive. It is strictly illegal to count them. But it is hard not to notice the relative sizes of the heaps of votes for the parties. The information fed back to Labour HQ was that the postal votes showed no swing to Labour in the marginals. Miliband’s late night visit to Russell Brand was undertaken as a panic response. And, just in case there are devotees of efficient market theory out there wondering how this information was used, I did make a modest amount by betting on the outcome.

More importantly, a web post by the polling company Survation reveals a more general problem. They conducted a careful telephone poll on the day before the election. Survation not only named the local candidates, but they insisted on only speaking to the named person from the dataset. They called mobile and landline telephone numbers to maximise the ‘reach’ of the poll. The figures showed 37 per cent to the Tories and 31 per cent to Labour, almost exactly matching the real result. Here is Damian Lyons Lowe, CEO of Survation, on what happened next: “the results seemed so out of line with all the polling conducted by ourselves and our peers that I chickened out of publishing the figures”.

Full credit to Mr Lowe for being so open and honest. But the same thing happened in the days before the 1992 election, another so-called ‘surprise’ Conservative victory. The Labour lead appeared solid, so several polling companies adjusted their results in the Labour direction in order not to look too different from the rest.

Both are classic examples of the influence of groupthink. This is exactly the same phenomenon which led to the financial crisis. The influence of the network of peers becomes so strong that individual judgement is overridden. ‘Everyone’ knew that mortgage-backed securities were a licence to print money, ‘everyone’ knew that debt was no longer a problem in the new economic paradigm. Even the strong willed leaders of major institutions capitulated in the face of such pressure, no matter what their private doubts. Opinion polls are neither here nor there. But a major challenge for financial regulators is how to identify the signs of the next build up of groupthink in the markets. This is the most effective way of preventing crises.

Paul Ormerod

As published in City AM on Wednesday 13th May 2015

Image: Flock of Sheep by Joan Campderrós-i-Canas under license CC BY 2.0

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ALEX O’BYRNE

Associate

e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.

ELLIE EVANS

Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.