Forecast of the 2008 presidential election on the basis of state-by-state prediction market contracts

A colleague pointed out to me today that Intrade hosts prediction market contracts on a state-by-state basis. These contracts have very simple names; e.g., TEXAS.DEM is a contract which will pay 100 Intrade points ($10) if the Obama/Biden ticket wins Texas and 0 otherwise, whereas TEXAS.REP is a contract which will pay 100 Intrade points ($10) if the McCain/Palin ticket wins Texas and 0 otherwise (FWIW, these contracts are currently quoted at 5 and 95 Intrade points respectively). This afternoon, I downloaded these data to a spreadsheet and sorted by price. Currently, the most valuable GOP contract is ALABAMA.REP, whereas the most valuable Democrat contract is ILLINOIS.DEM; in both cases, the last trades were at 98. The least valuable GOP contract is currently HAWAII.REP, which can be had for 2.30 Intrade points, whereas the least valuable Democrat contract is currently UTAH.DEM, which can be had for 2.5 Intrade points.

The next step in my analysis involved determining what an appropriate cutoff point might be for allocating Electoral College votes. I arbitrarily selected a price point of 55. Using this criterion, it would appear that the Obama/Biden is currently “winning” the following 21 states (I am including the electoral votes for each state in parentheses after its name): Illinois (21), Hawaii (4), Delaware (3), District Of Columbia (3), Vermont (3), New York (31), Maryland (10), Massachusetts (12), Maine (4), Rhode Island (4), Connecticut (7), California (55), Washington (11), New Jersey (15), Oregon (7), Minnesota (10), Wisconsin (10), Iowa (7), Pennsylvania (21), New Mexico (5), and Michigan (17). Applying the same criterion to the McCain/Palin ticket, I count the following 26 states: Alabama (9), Kentucky (8), Utah (5), Idaho (4), Alaska (3), Wyoming (3), Oklahoma (7), Nebraska (5), Arizona (10), Kansas (6), Louisiana (9), South Carolina (8), Texas (34), Arkansas (6), South Dakota (3), West Virginia (5), Mississippi (6), Tennessee (11), Georgia (15), North Carolina (15), North Dakota (3), Indiana (11), Missouri (11), Montana (3), Florida (27), and Ohio (20). If you add all the electoral college votes up, this analysis gives Obama/Biden a current electoral college total of 260, whereas McCain/Palin total 247 electoral college votes (270 votes are needed in order to win the election). The prediction markets also seem to indicate that the election is likely to be won or lost depending upon what happens in the following four battleground states (whose current prices are between 45 and 55 Intrade points): Virginia (13), Nevada (5), Colorado (9), and New Hampshire (4). If the 260-247 tally holds, Obama/Biden could win the election by also carrying Virginia or Nevada and Colorado, whereas McCain/Palin would need to pick up 3 of these 4 states.

Stay tuned; we live in interesting times!

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