Mr. Huntsman: A Case Study in the Difference Between Polls and Prediction Markets

This morning Nate Silver, writing in his blog in the New York Times, notes the disconnect between a few recent polls and Intrade's prediction market in regard to the likelihood of Mr. Huntsman ultimately gaining the Republican nomination for President. He is concerned that Republicans are giving Mr. Huntsman the highest "unacceptability" ratings of any major Republican vying for the 2012 Presidential nomination; 51% of Republicans state that he is unacceptable in recent polls. Yet, despite these unacceptability ratings, Mr. Huntsman is being given 13.3% likelihood of the Republican nomination by the prediction markets, placing him in a strong third place (the fourth place contender, Ms. Palin, is at just 6.7%).

As Mr. Silver notes, Mr. Huntsman is unknown to most Republicans and, if they know anything, they are likely to only know that he was an ambassador for President Obama. I will quote the comment on the New York Times article written by "David from NJ" (who, despite the description, is not me!): "The press on Huntsman has characterized him as a moderate and his role as ambassador to China puts him in the Obama camp. The net is he falls in the same group as Romney and Pawlenty, with possibly less well known knowledge about his positions than either."

The first reason that prediction markets (Intrade and Betfair are very close on these numbers) differ from the polls is that prediction markets take into consideration what the Republican voters will learn between now and their primary elections, while polls do not. Knowledgeable prediction market users are expecting voters to eventually learn what "David from NJ"already knows: that Mr. Huntsman is not in the Obama camp, but a standard Republican. The prediction markets are predicting that those unacceptability numbers will disappear in the next few months.

The second reason that prediction markets differ from the polls is that the prediction market users assume that Mr. Huntsman, in expectation, matches up the best against Mr. Obama in a general election. Mr. Obama has a 62.7% likelihood of winning the general election, but that number is related strongly to the likelihood of meeting his different potential Republican challengers. He is more likely to beat some challengers than others.

Mr. Romney has a 30.0% likelihood of winning the nomination and an 11.7% likelihood of winning the general election. When thinking about "electability" what I think about is the likelihood of winning the general election assuming the candidate wins the nomination. For Mr. Romney, that likelihood is 39.0% or 11.7/30.0; Mr. Romney‘s electability is similar to Mr. Pawlenty (33.5%) and Ms. Palin (37.9%). All three of these fall in the middle range, making them about as likely to win a general election as the average Republican challenger against Mr. Obama. Ms. Bachman, who is a very extreme candidate, has an electability of just 27.6%. If she won the nomination, Mr. Obama's likelihood of wining the general election would shoot up to nearly 75%.

Mr. Huntsman has a 48.5% likelihood of winning the Presidential election,contingent on winning the Republican nomination. Thus, the second reason that the prediction markets think Mr. Huntsman is so likely to win the Republican nomination, despite his initial weak polling numbers, is that he is the most viable candidate for the Republicans in the general election. He is the only candidate that the markets think could turn the general election into a dogfight.