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Last week was good for Newt Gingrich in prediction markets

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Newt Gingrich (AP)

Newt Gingrich watched two rivals stumble last week and came out the winner in the prediction markets.

Mitt Romney remained the clear frontrunner for the nomination with a 68.9 percent likelihood of winning, but Gingrich is the latest anyone-but-Romney candidate at 14 percent likelihood. The former speaker of the house benefited as Herman Cain's sexual harassment problems grew worse and Rick Perry had a memory failure at Wednesday night's Michigan debate.

We derive these numbers from prediction markets, such as Betfair and Intrade, which allow users to trade contracts on the outcome of future events.

The ultimate impact of the sexual harassment allegations on Cain's candidacy remains to be seen, but they have had an immediate negative effect. In the week following the surfacing of allegations, Cain chalked up record fundraising and steady poll numbers. Yet, his fourth accuser's press conference at the beginning of last week was followed by three national polls showing him no longer in first place.

Real Clear Politics' poll average now has Cain in second place, behind Romney, for the first time since he shot to the top. The only reason that Cain did not fall harder in our likelihood of victory is because we never took his nomination too seriously; we give him a 4.0 percent likelihood of actually getting the nomination.

We were not alone in projecting trouble for Perry following his 'oops' moment in the debate. Prediction markets showed this within minutes and Perry did not recover during the remainder of the week despite efforts to laugh it off. This prediction includes the information that he possesses a lot of money and ground support in Iowa; it is only 3.6 percent likely that those resources are going to be enough to overcome concerns about his fitness for office.

The below chart notes the three major events of the week: the Cain press conference, the Wednesday debate, and the Saturday debate. The Saturday debate on foreign policy had little impact on the state of the race:

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Likelihood of Republican Nomination for President (Nov 14)

Romney received short-term boosts during the week, but statistically ended the week where he started. He continues to have trouble gaining traction with Republican voters, even as his rivals stumble. This is best represented by his stagnate poll numbers that have yet to cross the 30 percent threshold. Still, one thing to keep in mind is that the closer Romney gets to the primaries without a serious challenger, the more likely it is that he will win the nomination.

Political pundits, following the recent polls, are finally agreeing that Republican voters are taking a serious look at Gingrich. Yet, his 14.0 percent likelihood of gaining the nomination says less about Gingrich and more about Romney. Gingrich is the most recent person to take the largest share of the likelihood that Romney does not get the nomination, currently at 31.1 percent. Despite his time as speaker of the house, current Republican voters have not vetted him as intensely as they they have previous Romney rivals and, at 14.0 percent, it is still unlikely that he will be propelled to victory after they do.

David Rothschild is an economist at Yahoo! Research. He has a Ph.D. in applied economics from the Wharton School of Business at the University of Pennsylvania. His dissertation is in creating aggregated forecasts from individual-level information. Follow him on Twitter @DavMicRot and email him at thesignal@yahoo-inc.com.

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