Can Rick Perry afford to lose in Iowa?

Is the Iowa caucus a make-or-break moment for Rick Perry's presidential campaign?

That's what the Intrade prediction markets suggest. The traders handicapping the GOP presidential field on Intrade give Perry a 23.4 percent chance of winning Iowa, while fixing his overall shot at the nomination at half that likelihood--a mere 12.1 percent.

Iowa is the first contest on the 2012 primary calendar--and while Perry, like all the candidates in the field, faces several possible scenarios in Iowa, I will focus on the simplest outcomes: Either he wins, or he loses.

On paper, of course, Perry could absorb a defeat in Iowa without it turning into a fatal blow. After all, Iowa distributes less than 1 percent of delegates to the Republican National Convention. And across the board, the RNC assesses delegates on something close to a proportional basis--meaning that Perry's home state Texas, for example, which has delivered him the governorship by impressive margins, weighs far heavier in the balance than a less-populated state such as Iowa or New Hampshire do. Nevertheless, because Iowa is first, it plays an outsize role in shaping the race's momentum--and in media horse-race accounts of who's up or who's down in the battle for the nomination.

So consider the fallout from a Perry loss in Iowa--which Intrade predicts at an imposing 76.6 percent likelihood. Prediction markets place Perry's shot at a victory in the New Hampshire primary, slated to come on the heels of the Iowa caucus balloting, as all but negligible. In the wake of an Iowa loss, Perry's already dismal New Hampshire numbers would only decline further.

And consider, by contrast, what an Iowa win would do for Mitt Romney, who currently shares frontrunner status in the field with Herman Cain. Intrade shows that a Romney victory in Iowa would send his already strong likelihood of prevailing in New Hampshire--which is just one state over from his home state of Massachusetts--from 83.3 percent to north of 90 percent. So a win in Iowa would essentially give Romney back-to-back victories going into South Carolina.

Meanwhile, if Cain emerges victorious in Iowa, that scenario is also no boon to the Perry campaign, which still can't make its candidate competitive in New Hampshire. What's more, an early primary win by Cain would render him an instant threat to Perry's position in South Carolina.

Losing in Iowa would effectively turn South Carolina into a must-win state for Perry--but would also further decrease his present 27.5 percent shot at a South Carolina victory in the prediction markets. Since the South Carolina balloting is still several months away, it's not yet feasible to game out just how much support Perry stands to lose there in the event of an Iowa loss. But a realistic estimate would place his diminished likelihood of a Palmetto State win somewhere between 10 and 20 percent if he's unable to pull out a victory in Iowa. And even if Perry hangs on to prevail in South Carolina, he would still face a very rocky path forward on the remainder of the calendar. The core takeaway here is that a close look at predictions markets suggest that Perry probably has less than a 5 percent likelihood of winning the nomination if he loses in Iowa.

Now consider what happens should Perry win in Iowa. Romney is only 32.6 percent likely to carry Iowa, so a loss there would be significant for the former Massachusetts governor, but it would not be totally unexpected. He would move down from 66.6 percent likely to win the nomination, but how far? Romney would still be the strong favorite in New Hampshire. He would still be in tight contention in South Carolina--and possibly still favored in Florida and Nevada.

In the last few open nominations for the Republican nomination, McCain (2008), Bush I (1988), and Reagan (1980) all lost their bid in Iowa, while Bush II (2000) and Dole (1996) won. Wining Iowa is no guarantee of winning the election; at best, a Perry win there would give him a 50 percent shot at the nomination.

The chart below shows Perry's likelihood of winning in Iowa, New Hampshire, and South Carolina--alongside projections for his chances at winning the Republican nomination. I have highlighted Perry's major turning point, his third Republican debate. As Perry's Iowa prospects break either toward 100 percent (i.e., winning) or 0 percent (i.e., losing), you can expect his likelihood of winning the Republican nomination to move towards 50 or 0 percent respectively:

All of this is a fancy way of saying that Perry has a significant likelihood of winning Iowa, but still has a very low likelihood of winning the Republican nomination.

You can watch the prediction markets move in real-time here. And we at the Signal will continue to update readers on how the numbers continue to shift and break down.

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 PredictionBlogger@Yahoo.com.

More popular Yahoo! News stories:
• Jon Huntsman on the tea party, the polls and his hair
• Will Mitch McConnell's stiff-arm keep West Virginia out of the Big 12?
• Mike Tyson as Herman Cain?