Prediction markets assessment of the Presidential Election

Today’s Wall Street Journal article entitled “For Math Whizzes, The Election Means A Quadrillion Options” provides an overview of the various quantitative techniques being employed by geeks all over the country who typically are tenured college professors who probably have too much time on their hands.  Notwithstanding the barrage of criticism which has been leveled at the prediction markets (e.g., one commentator has described the Iowa Electronic Exchange Market as “college students playing with their lunch money”, and others have offered even more unflattering comments which will not be repeated here), I remain a fan and am looking forward to how the realized election results line up with these markets’ predictions.

Speaking of the prediction markets, the prices on the state-specific “Bush win” contracts offered on tradesports.com suggest that Bush currently (as of 10 a.m. on October 26) has a 19 electoral college vote advantage over Kerry; specifically, 253 to 234.  The basis for this assessment involved allocating electoral college votes to Bush in states with “Bush win” contract prices exceeding $60, and to Kerry in states with “Bush win” contract prices less than $40.  In my opinion, the states which are really in play are those with “Bush win” contract prices between $40 and $60.  There are five states which fit this criterion: Wisconsin, Ohio, New Mexico, New Hampshire, and Minnesota.  The following table lists the current prices for Bush contracts in these states, along with the number of electoral college votes which each state owns:

State

Electoral College

Votes

10/26/2004 “Bush win” Contract Price

WISCONSIN

11

59

OHIO

21

55.5

NEW MEXICO

5

50

NEW HAMPSHIRE

4

44.5

MINNESOTA

10

40.8

If Bush holds onto the states with contract prices exceeding $60, a win in Ohio would put him over the top.  If Bush does not win Ohio, he can still be reelected by taking Wisconsin, New Mexico, and New Hampshire.  Kerry on the other hand, will not likely win the election without taking Ohio.  Of course, various other permutations are possible.  The prediction markets data suggest the possibility of a 269-269 tie in the electoral college, which would happen if Kerry wins Ohio, New Hampshire and Minnesota, while losing Wisconsin and New Mexico to Bush.

Certainly the quantitative models are interesting, and as indicated by the Wall Street Journal article referenced above, suggest that the election may very well be somewhat of a toss-up.  However, there is probably no predictive indicator which has been as consistently accurate as the Weekly Reader poll.  Since 1956, Weekly Reader students in grades 1-12 have correctly picked the president.  As noted on the Weekly Reader website, “President Bush was a strong winner in the student poll; the only state Senator Kerry won was Maryland. Senator Kerry was also in a statistical dead heat with President Bush in New York, Massachusetts, Washington, D.C. and Vermont. President Bush won most grades, although Senator Kerry did win among tenth-graders.”  Also, results by grade are shown on the Weekly Reader website, in case if you are interested.

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