Click image to see more photos. (AFP/Paul J. Richards)
The future of the Republican primary hinges on Pennsylvania, where Rick Santorum must win his home state to hang on to his tenuous position in the race.
The political gambling markets that we watch so closely are extremely confident that Mitt Romney will ultimately win the nomination. This gives Santorum supporters in Pennsylvania an interesting choice when they go to the polls:
Option 1: Vote for Rick Santorum. By definition, supporters believe his positions align the closest with their own. Voting for Santorum sends a message to the Republican Party that the voter wishes the party would nominate a person with similar political philosophies.
Option 2: Hold your nose and vote for Mitt Romney. Presumably, the majority of Santorum supporters would prefer Romney to Obama in the White House in 2013. A vote for Romney helps him end the primary sooner and focus on Obama. Quite simply, it increases the likelihood that Romney wins the presidency in November.
[Related: Checking Santorum’s delegate math: Are Romney’s numbers really inflated?]
Here is how an economist like me would approach the problem: First, think about how different your political opinions are from those of Santorum, Romney and Obama. If you feel that the distance between Romney and Santorum is very far apart, and that Obama is not much further from your positions than Romney, then it would be rational to vote for Santorum and send a message of support for his positions. If you feel that the differential between Romney and Santorum is relatively small, and that Obama is much further from your positions than Romney, then it would be rational to vote for Romney and give him a boost in November.
[Related: Santorum holds strategy sessions with conservatives amid calls to withdraw]
Either way, we are predicting that Mitt Romney will carry the state. Using prediction market data, we have Romney at an 87.7 percent likelihood of carrying the April 24 primary. This prediction is interesting because it stands in stark contrast to the polls and poll-based forecasters. RealClearPolitics' aggregation of the Pennsylvania polls has Santorum up by 1.7 percentage points over Romney, leading in three of the last four polls. FiveThirtyEight, the New York Times blog that bases its predictions on polls, includes an additional poll that also has Santorum leading, but still gives Romney a 51 percent likelihood of victory. It is not clear how the Times calculates a slight Romney lead from the polls showing Santorum ahead in his home state.
Prediction market data has contradicted the polls in several primary contests so far, and history suggests it's a much better engine for predictions. In Michigan and Ohio, for example, the market data allowed us to predict Romney victories more than 10 days before the contests, while poll-based forecasts were showing Santorum victories until just a few days before the contests.
The markets recognize that only a small number of Santorum supporters need to choose option 2 for Romney to prevail in a close race. This information is a key difference between polls (which show a snapshot of today's support) and prediction markets (which predict how people will vote on election day).
Follow along in real time on PredictWise for Republican primary contests.
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. Follow him on Twitter @DavMicRot and email him at thesignal@yahoo-inc.com.
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