How Much Do Election Shakeups Affect the Nation’-s Economy? – [US politics &- financial markets] – by Justin Wolfers and Mark Thoma – 2006-11-03
[Justin Wolfers] And the major puzzle that I currently see? The past two years have clearly been terrible for Republicans, with Iraq deteriorating, Katrina undermining the public trust, and corruption scandals aplenty. And consequently their chances of keeping control of the House have fallen precipitously (Intrade.com charts here). But the real surprise? Prediction markets tell us that the odds of Republicans winning the White House in 2008 remain virtually unchanged. Neither the incumbency advantage coming from victory in the 2004 elections, nor the subsequent declines in Republican fortunes have shifted the odds (chart: here), and the 2008 Presidential election remains a coin flip. Stay tuned: It looks like Tuesday will be a long night. And when the counting ends, the two-year campaign for the White House begins.
My Take: Our good doctor Justin Wolfers takes his Democratic dreams for the reality (all that said in all due respect for this bright researcher). We’-re two years away from the November 2008 presidential election. The margin of error is still enormous, so today’-s market-generated probabilities (Dems: 48.6% – GOP: 48%) for the 2008 presidential race mean strictly nothing. Plus, at times, a US presidential candidate can get substantial votes from the other camp (e.g., Ronald Reagan seducing many Democratic voters, etc.).
Addendum: Mike Linksvayer has an interesting comment, attached below this blog post.
Addendum 2 (November 04): Professor Justin Wolfers has responded, in the comment area, below this blog post. (And his paper is excerpted here, on Midas Oracle.)
Two days ago, I stated brashly that political prediction markets aggregate the polls, mainly. (Mike Linksvayer nuanced my propos, in the comment area.)
GOP Keeps Senate, Loses House, Betting Site Says. – [US political prediction markets] – by Ronald Kessler – 2006-10-24
One theory is that prediction markets are influenced by the results of opinion polls. But if that were true, individual polls would also influence each other. Moreover, long before the Internet and opinion polls came into existence, election betting was accurately predicting election outcomes. From 1884 to 1940, betting was conducted on Wall Street by specialized brokers called betting commissioners. The betting odds for each candidate were published daily in the New York Times and other papers. The so-called New York betting markets correctly predicted 12 of the 13 presidential elections between 1884 and 1940, according to Koleman S. Strumpf, Koch professor of economics, University of Kansas School of Business, who co-authored a paper examining the markets. In the one exception, the betting swung to even odds by the time the polls closed. The Gallup Poll, the first scientific opinion poll, began in 1935. The arrival of opinion polls and stricter anti-gambling laws drove out the New York betting markets. The Internet has led to their revival.
Paper: Historical Prediction Markets: Wagering on Presidential Elections – (PDF) – by Paul W. Rhode and Koleman S. Strumpf – 2003-11-10
My Question: Before 1935 (that’-s when George Gallup crafted the first scientific polls), what the hell those political prediction markets were aggregating, for Christ’-s sake??? And where is our good doctor Koleman Strumpf when we need him?
Previous blog posts by Chris F. Masse:
Become “friend” with me on Google E-Mail so as to share feed items with me within Google Reader.
Nigel Eccles’ flawed “vision” about HubDub shows that he hasn’t any.
How does InTrade deal with insider trading?
“The Beacon” is an excellent blog published by The Independent Institute.
The John Edwards Non-Affair… is making Memeorandum (twice), again.
Prediction Markets = marketplaces for information trading… and for separating the wheat from the chaff.