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Maintaining Optimism in the Face of Reality. Occasional observations on the state of the world, society, business and politics. Usually anchored by facts, always augmented by opinion.


Election Outcome? Like Deep Throat Said, 'Follow The Money'  | e-mail post

A week from tomorrow, the nation will go to the polls en masse, as opposed to the limited early voting that's going on now (and who wouldn't love to know what those numbers are looking like?). As of today, it continues to look more and more like Bush is going to roll into another term. It's not just the polling that's saying this, although the polling is saying that strongly; it's also the money that's making it clear. What do I mean by "the money"? Let me explain.

When I was at the University of Iowa back in 1988, it was the first year they ran the Iowa Presidential Stock Market, a market system that attempted to predict the election outcome by letting people put their money where their mouth is. The theory, borne out by accurate predictions of the past four Presidential elections, and many other events, is that if people are making a financial bet on the outcome of the election, they will aggregate and interpret a variety of information and place their money on the candidate they believe most likely to win, who may or may not be the guy they want to see win. It's basically the efficient market hypothesis applied to predicting elections. (You may remember the flap John Poindexter caused with proposing a similar approach to predict terrorist attacks. I won't even get into the reasons why this was a foolish application of the theory.) I've always followed the Iowa Electronic Markets, as they are known today, both because of their accuracy and also because my girlfriend at the time (who I still see every day) was involved in the original establishment and research on the market for the 1988 election.

Today the IEM shows Bush with an increasing lead over Kerry, as can be seen from the daily closing price chart on the winner-take-all Presidential contracts.

But if you want to follow the money even further, you might want to look at how gamblers are betting. TradeSports has contracts on all of the state-by-state outcomes as well. If you check out the contracts, you can see how people think the swing states are going to play out. The contracts are written for Bush wins, so a number above 50 indicates that money favors Bush while numbers below 50 indicate it favors Kerry:
It is interesting to note that, with the exception of New Hampshire, these results are consistent with the numbers Jay Cost developed by aggregating polling data from multiple polls within each of the states. Jay has NH 56% likely to go for Bush, so I think both numbers point to the fact the NH is going to be close. You can read his results in yesterday's state poll update.

All told, if you sum up the states where people are betting that Bush will win, he totals out at 291 EV, 17 over the 274 needed to win. This is fairly consistent with the TradeSports Electoral Vote contracts. They have the "Bush 280+ EV" contract at 52.4 (the 290 contract is only at 41, but that's not as safe a bet, of course).

e-mail post | Link Cosmos | [Permalink]  |  | Monday, October 25, 2004
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