Despite large swings in the market for presidential nominees over the past few days, on the Democratic side Clinton has dropped and Obama risen by almost 15 points and on the Republican side McCain has surged to take the lead (!), there has been very little movement in the winner take all market which is predicting a Democrat win. Thus, the markets seem to be saying that the candidate doesn’t matter. In this election it’s party and the Republicans are losing.
Winner Take All Market from IEM (click to expand).
Ok, Alex, the blue spike (to 95!) around mid 07…how does the explanation run?
Also, about a year earlier…it *was* a toss up whether the Dems or the Reps would win? Really? This tells me that IEM players are *not* fair and balanced (R/D) gamblers…and that current 40/60 split is so desperately modest.
As usual I tend to make less informational and more structural interpretations of these thin markets.
The comparable Intrade markets had a similar non-reaction. It could just be that the active trading capital is occupied with the nomination and primary markets and there is no reason to make significant allocations to the Dem/Rep markets right now, especially given the margining system.
Also, the markets were not surprised by the outcomes and predicted them more decisively than the polls, so if the markets were not surprised, we shouldn’t expect a big shift in the Dem/Rep markets.
Lee,
Brian was just confused about what it means to arbitrage, as he notes later in the comment thread.
The basic finding you should operate with is that prediction markets are good predictors of future events – this is a robust and *very* well established result using years of data from dozens of markets around the world for a great variety of events. Furthermore, prediction markets are but one species of financial and betting markets for which there are many thousands of studies showing similar results.
I haven’t looked at the Erickson and Wlezien study closely but the way to interpret it is simple – they are telling you how to make money on the stock market. Do you believe them? If you do, how long do you think these profit opportunities will last? (i.e. before market prices adjust to reflect events even more accurately?)
I’d venture a guess that the spike was a first timer screwing up and putting in a bid way over market value. I know I’ve done it before. I bid that the Republicans had a 50% chance of winning New York in November. Biggest waste of $5.00 ever.
I think the Republican party will have to be destroyed in order to save it. Most of them seem completely unwilling to concede how badly they’ve fouled up.
Since the Republicans seem doomed anyway, it’s a shame the Democrats haven’t gone for more principled but otherwise less “electable” types like Dodd or Gravel.
Alex,
SUE, e.g., was found and published several years ago, but still is a money maker.
Evangelicals will be the last Republicans, right? And the party will be centered on their Litmus issues.
If so, then it would not be out of the question to expect a realignment. Huckabee is, for example, certainly not a “hard right winger” by any means; he would have been a fairly conventional religious left/conservative Democrat in many other eras, the kind that was mostly stamped out for a variety of reasons until the Democrats began nominating several in 2006 in order to retake Congress. (Remember, Carter won the Evangelical vote handily in ’76 against Ford.) As one libertarian-leaning, I would not necessarily be happy with such a realignment, at least for quite a while, since most libertarian views don’t command a majority of the population.
And of course, at this point in ’92 Bush was a shoo-in for re-election, and Clinton was about to get 3% in the Iowa caucuses, etc., as everyone will remind people this week. Part of the Republican problem right now is that they have a lot of candidates who appeal to particular parts of the old coalition, but not enough to all
Ok, Alex, the blue spike (to 95!) around mid 07…how does the explanation run?
It’s called noise and doesn’t generally need an explanation. Any short-term change in price, in this or any highly traded market, is mostly noise. Taking a single, or even serveral, samples and trying to figure out which part is signal and which is noise is essentially impossible. Assuming we have a large number of samples, the noise can be filtered out and the signal extracted by looking at the data, but only over a a sufficient period of time.
Brian Courts, your thought experiment is less useful than anecdote. You are “assuming a can opener,” as goes the old joke about economists. You would have to explain how you can PROVE that the market has “correctly” priced the chances in 10 elections — in other words, you would have to specify the objective reason each candidate has a 60% chance of winning in each election, independently of the market price and thus validating the market price. For example, coin-flipping depends objectively upon chance in physics: are you tossing a lopsided coin? For another example, stock valuations are judged by calculations using underlying fundamentals. I suppose you could go from the percentage of voters in each party, but this is unreliable with regard to the White House, which has mostly been a personality contest. Failing an independent verification in your example, your judgment that the markets did NOT get four races wrong is nonsense.
Returning to reality, I think the reason why most people didn’t see the Virginia election coming, was because they didn’t observe the two men in the debates, nor match it to the mean polling trend which had been steady since mid April 2006 and was inexorable by early September. The bettors were going with conventional wisdom about the conventional wisdom.
Why didn’t I bet? Very simple: I don’t gamble. I believe that it is spiritually debilitating.
It’s perhaps a saving grace, though, that you stuck “uncertainty,” “probably,” “estimate,” and “likelihood” into your last sentence, because metaphysics releases you, also, into pure belief.
Isn’t it a straightfoward matter to compare the predictive power of these markets with that of traditional polls?
Wonderer, I’m not sure how prediction markets are tested. They are continuous predictions (running over months) for a discrete event (a single election).
Are they “right” if they center in on the right answer in the final days? Are they “wrong” because they didn’t have that same answer months earlier?
heh. I guess this can be filtered through one’s beliefs. If they were “wrong” months earlier that might be (as I believe) just the limits of human prediction. On the other hand, a true market believer might say they were “right” and that conditions just changed later.
Thanks, Anders. The Hillary contract does seem consistent with your view of the probabilities. I’m amazed that the expected value of the Hillary contract could vary by 40 points by virtue of the Iowa caucuses.
To back up your theory of other candidates needing a bounce from Iowa, the Hillary contract to win New Hampshire appears to have fallen from 80 to 50 immediately after Iowa, and is now near 20.
æä¾›é’¢ç®¡æ— ç¼é’¢ç®¡æ•°æ®æ¢å¤å¿ƒç†å’¨è¯¢å¿ƒç†è¾…导与心ç†æ²»ç–—bjxlzx.cnç‰æœåŠ¡
thank you for this information.sis jarMy local telecom is a monopoly, and it is out-of-control as far as wiretapping, eavesdropping, hacking, controling e-mail programs, phishing, spoof websites, etc.
No company should be immune from law suits and especially companies that control our communications.To give telecoms immunity will make “big brother”free nokia 6600 games
Comments on this entry are closed.