Posts by David Pennock
Last year, the Signal noticed an eerie correspondence between the highs and lows of the S&P 500 stock market index and the ups and downs of President Barack Obama's odds of winning re-election in the prediction markets. Almost a year later, the two data sets continue to move in remarkable lockstep.
As thorny correlation issues go, this one is particularly interesting because the phantom hand of causation could move in either direction (or in neither, of course). Consider these various interpretations:
On Super Tuesday, the Signal got 9 out of 10 election predictions correct, following up on an Oscar night where we got 3 of 4 award picks right. Not bad, but we really wish we didn't have those two annoying blemishes, right?
In fact, we're delighted! When the markets are functioning properly, we expect to get a certain percentage wrong every time. (The exact amount depends on how certain the probabilities are for each election on a given day; on Oscar and election nights we actutally expected to get about one wrong each.) If we had swept all 14 predictions, it would have meant our confidence was too low, or what statisticians call "miscalibrated." It sounds strange, but it's actually possible to get too many predictions right.
Russians will go to the polls on Sunday to elect their next President, and as over 30,000 web pages note verbatim, Vladimir Putin is "expected to win." But just how certain is "expected" in the often-shady world of Russian politics?
We're no Kremlinologists, but we can find a reliable gauge of Putin's likelihood of winning in the stinginess bookmakers in doling out winnings if that happens. Oddsmakers William Hill, Ladbrokes, and StanJames are each offering only $101 back for every $100 their customers risk on Putin. That puts the odds of a Putin victory at something just below 99 percent.
Strictly by the numbers, Mitt Romney's narrow victory last night in his home state of Michigan was modest. He won only 3 percent more votes than second-place finisher Rick Santorum and, because the primary is not winner take all, the two candidates will split the real prize -- Republican delegates -- nearly equally.
It's no secret that states with early primaries or caucuses have had an outsized influence on the outcome of the nomination. Cutting to the front of the calendar is such a boon, particularly given the economic boost that campaigns deliver, that states are willing to sacrifice their influence at the convention in order to hold their contests early. After weighing the benefits, for example, New Hampshire, South Carolina and Florida all chose to violate Republican National Committee rules and hold their primaries earlier than allowed, thus sacrificing half their delegates at the convention.
There are many reasons why this is a broken system. Without sufficient penalties for states jumping the gun, the next cycle's primaries could easily spill into December of 2015, while states that play by the rules will remain insignificant. So here at the Signal, we're proposing a simple way to fix this process, while preserving a staggered order of contests: Treat the nomination like a market, and let states bid on how early they want to go.
Almost immediately after polls closed at 8 p.m. ET, the major networks called the state of Florida for Mitt Romney. The markets were extremely confident in this outcome, as we noted yesterday, so there was no major movement in the overall odds for the nomination; Romney crept up about two percentage points to an 88 percent chance of being the Republican nominee for president.
The twittersphere erupted immediately, referencing the former Massachusetts governor at a rate of nearly 500 tweets per minute--for all of 10 minutes. (That's not necessarily abrupt, as far as Twitter goes.) Queries about Romney on Yahoo! Search also briefly spiked to about 10 times their usual rate. Romney enjoyed a second, lesser, spike as he delivered his victory speech. (Ron Paul, as usual, received the highest online interest among all the candidates during the Florida speeches.)
If you're curious why the candidates were tripping over themselves to out-praise Marco Rubio, Florida's Republican junior senator, at the last debate, look no further than the political market Intrade, where Rubio is in first place to be second fiddle with a 24 percent chance of being the eventual winner's running mate. (Meanwhile Joe Biden is the overwhelming favorite to remain Obama's choice.)
Two days ago, Mitt Romney was looking at a clean sweep of the first three contests of the 2012 primary. With polls opening at 7 a.m. EST tomorrow, he's now looking at going one-for-three. First, he lost his technical 8-vote victory in Iowa to Rick Santorum (though let's face it: It was a tie.) Now, his once dominate odds of winning South Carolina have dwindled to 35 percent as of this writing, 30 points behind rival Newt Gingrich.
Meanwhile, Gingrich earned, if not a standing-O, at least a nod on prediction markets Intrade and Betfair, where political handicappers rate his chances of winning South Carolina's Republican primary Saturday by putting money on the line. Between the beginning and the end of the debate, traders bought into his Palmetto State candidacy a fraction more heavily, boosting his likelihood of winning from 5 percent to about 8 percent. The rise occurred within hours of the debate, leaving little doubt traders were reacting to what they saw—or, more accurately, what they felt the South Carolina electorate saw—in Myrtle Beach.
Almost two hundred evangelical leaders gathered on a Texas ranch over the weekend to make one last anyone-but-Romney stand, coming to a near-consensus and endorsing Rick Santorum as their Republican candidate of choice.
Santorum immediately enjoyed a small but significant boost in the prediction markets, nearly doubling his chance of winning the South Carolina Republican primary next Saturday from about 2.5 percent to almost 6 percent.
Yet, another candidate seems to have benefited indirectly from the endorsement: Mitt Romney. His chance according to prediction markets Intrade and Betfair also rose, from about 75 percent to 80 percent. Our guess is that this is because the endorsement probably hurts second-place Newt Gingrich, who is vying for the pool of socially conservative voters who might be swayed by the endorsement.