The Signal

Romney leads prediction markets even as poll numbers lag

Mitt Romney had another good week. Prediction market data from Betfair and Intrade indicates that the presidential hopeful has a nearly 70 percent likelihood to win the Republican nomination. His closest competitor, Newt Gingrich, isn't really even close; he has a 9.5 percent chance of winning, while Ron Paul registers a 7.7 percent, and Jon Huntsman at 3.9 percent likelihood. These numbers have held relatively steady all week, but Romney is on a slight upward trend while the other candidates' chances are trending downward.

The prediction markets are in sharp contrast to the polls, which have remained steady, with Gingrich still clinging to a small lead. Real Clear Politics' aggregated poll trend has Gingrich at 27.6 percentage points among Republican voters to Romney's 24.8 percentage points and Paul's 12.2 percentage points. The chart below shows the polls and prediction markets side by side:

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Polling and Likelihood of Republican Nomination for President Dec 27

sources: Real Clear Politics (polls) Betfair and Intrade (prediction markets)

Why the Gingrich gap? First, there's the candidate's Virginia problem. Gingrich's campaign failed to get enough signatures to get on the ballot there, and without the possibility of write-in voting, he won't have the chance to win electoral votes from his current home state (Gingrich lives in the Washington DC suburb, McLean). Not only does this hamper his efforts to win the nomination, it indicates a lack of ground organization and campaign planning. Perhaps worse, Gingrich publicly compared this setback to the surprise attack of the Japanese on Pearl Harbor; Fox News mocked this analogy. Both the lack of presence on the ballot in Virginia, and Gingrich's interpretation of that fact, have been absorbed in the prediction market numbers. Not so for his poll numbers.

As for Paul: his newsletters from the 1980s and 1990s became an issue in the campaign this week and will likely hinder his growth in support beyond his stalwart base. Paul now denies his involvement in the racist newsletters, but his distancing of himself from them may not make a difference. If he did write them, that would surely alienate a huge swath of the voting population. If he didn't, it raises many questions about his leadership skills. Unless Paul can adequately defend his actions around these newsletters and their content, he is going to have trouble growing his support beyond his base. So, the prediction market data indicates that it is unlikely his steady strong support in the polls will grow enough to carry the nomination.

On Monday, neoconservative leader, George W. Bush foreign policy cheerleader, and early supporter of Sarah Palin, Bill Kristol, made an emotional plea for a new anyone-but-Romney candidate to join the race for the Republican nomination. Yet Gingrich's woes show that it is too late for a new candidate to build a national organization and get ballot access. Thus, the more trouble that occurs for the remaining  anyone-but-Romney candidates, the more likely Romney himself is to win the nomination.

Follow along on PredictWise for the real-time likelihood of the Republican nomination and the individual Republican primaries.

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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