Prague Twin

Sunday, November 04, 2007

Elections According to the Market

I've mentioned before that the open market is generally a better predictor of election results than any poll. When people are putting their hard-earned down, there is no agenda except for making money. There is no margin of error or 0.05 alpha to concern oneself with. Having said that, the markets only give the probability at any given point in time. Any gaffe or revelation can change the shape of the election at any time (as with the polls).

It has been a while since I checked in with Intrade, the most widely used election market. As I've explained before, the number associated with each result represents the cost of a $1 contract in cents. This translates roughly to the percentage chance that the result in question will come to pass. So for example, if the value is 10, it will cost you 10 cents to buy a contract that will pay $1 if you are right. This means that the market expects that there is about a 10% chance that what you bet on will come to pass.

The face of the upcoming presidential election has changed drastically in the past few months. Starting with the Republicans, we see a two man race, with Romney picking up the support from other candidates that have seen their numbers drop drastically lately (like Thompson, Brownback, and McCain). You can see Romney's steady climb in the race for the Republican nomination below.



On the other hand, Giuliani's numbers are relatively stagnant...



So it is clear that Romney is picking up the others' support in the GOP race. The GOP race had been much more interesting than the democrats with 4 or 5 serious contenders, but now it looks like a two-man race.

Turning now to the Democratic race which used to be a two-person race until recently, we see Clinton now up to a figure above 70.



This surge has come mostly at the expense of Barak Obama (the others are insignificant as ever).



So far, all of these charts have to do with the nominations. With Romney gaining so much ground in the race for the GOP nomination, one would expect that the odds of him winning the presidency would be similarly on the rise. However, that is not the case...



Instead, while Clinton seems to have the Democratic nomination nearly locked in, and Romney is making progress towards gaining the GOP nomination, the odds are leaning towards a Democrat in the White House. Below is the chart for the probability that the Democrats will take the White House in 2008.



It has never looked better for Hilary Clinton.

6 Comments:

  • Interesting charts - thanks.

    If it comes down to Romney vs Clinton, I think Romney wins. The big opinionmakers on the right, like Limbaugh, Hannity, O'Reilly, etc are just salivating over the idea of a Clinton nomination. They're going to pound her relentlessly. Giuliani has enough baggage of his own that I think Clinton could hold on against him. But not Romney.

    By Anonymous abi, at 3:53 PM  

  • Abi,

    I would tend to agree with you, except the numbers don't really pan out. If that were true, as Romney's chances to win the GOP nomination went up, so would his chances to win the White House. That is not the case so far.

    By Blogger Praguetwin, at 4:26 PM  

  • That is an interesting spin on my economic election predictor. Very interesting.

    By Blogger Cartledge, at 12:25 AM  

  • There's been a lot of right wing talk that the mistep of Clinton about illegal alien driver's licenses was a Muskie crying in the truck sort of moment, but as these prognostication tools show, that's just wishful thinking on our part. Do you know what these markets showed vis a vis Kerry and Dean the week before the Iowa Caucuses in 2004?

    By Blogger Roger Fraley, at 6:13 PM  

  • Muskie was a little before my time, although I think I was potty trained by then.

    No idea about Kerry on the markets. I started checking this out before the 2006 election. My assertion that Intrade outperforms polls comes directly from this blog and they don't fudge numbers.

    I'd be willing to bet that the markets showed a better chance for Kerry than the polls did at the time.

    By Blogger Praguetwin, at 12:09 AM  

  • You're probably right but I think Kerry's success and Dean's poor performance took nearly everyone by surprise. I keep forgetting you're so young. Forgive me.

    By Blogger Roger Fraley, at 7:38 PM  

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