The Signal

Prediction markets: Gingrich is electable

David Pennock
The Signal

Worried that the Democratic base won't muster the same urgency and energy it did in 2008, Barack Obama's campaign may be privately salivating over the prospect of a general election contest against Newt Gingrich. Arguably, the image of a President Gingrich should be even more horrifying to progressives than a McCain administration. Whether he deserves it or not, Gingrich embodies right-wing extremism in many minds.

If, as conventional wisdom suggests, the general election turns into a race to capture votes from centrists and independents, Obama would seem well positioned against Gingrich. The New York Times's election number-cruncher Nate Silver projected Gingrich only half as likely to defeat Obama as Mitt Romney under current economic conditions.

Democrats may want to be careful what they wish for. According to political oddsmakers on sites such as Intrade and Betfair, Gingrich has a strong 45 percent chance of defeating Obama in the general election should he emerge on top in the Republican primaries -- only negligibly lower than Romney's 48 percent chance. On prediction markets, traders put money where their mouths are, backing up bombast with cash. Historically, the markets have a better track record of estimating the likelihood of political outcomes than experts and specialists do.

While prediction markets don't directly score a candidate's electability, they do gauge two related metrics: How likely Gingrich is to win the Presidency, and how likely he is to win the GOP nomination. From these two data points we can compute his electability. Simply divide Gingrich's chance of winning the presidency (which stands currently at 15.4 percent) by his present chance of earning the Republican nomination (33.9 percent). The result -- 45 percent -- is Gingrich's likelihood of winning in November 2012 if he is nominated. In other words, this ratio reflects the markets' opinion of Gingrich's electability in a direct face-off against Obama.

As a sanity check, we can compare against another method to estimate electability utilizing a technical analysis called logistic regression. The method looks at how Obama's reelection probability varies as the frontrunner in the Republican nomination battle changes. If a surging Gingrich tends to boost Obama's chances -- and conversely, if when Romney rises, Obama falls -- then Gingrich's electability score would be rated lower and Romney's higher.

This method also finds Romney only a few percentage points stronger against Obama than Gingrich would be. During Gingrich's recent rise in the polls and the prediction markets, Obama's chances have improved, but ever so slightly, suggesting that a general election match up between the two would still be a close one.

With nearly a year to go before voters make their final decisions, almost anything can happen: from a repeat recession to a major scandal. It's hard to imagine any candidate from one of the two major political parties in the United States having less than a 40 percent chance of winning at this point. The standard-bearer for either party will have almost a billion dollars to spend and an army of supporters willing and able to spread their message -- plenty of weapons to keep the battle close. Gingrich may be a polarizing figure, but he very well could win.

David Pennock has a Ph.D. in computer science from the University of Michigan and currently heads the algorithmic economics group at Yahoo! Research. Follow him on twitter @pennockd.

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