Markets predict Supreme Court will overturn health care law (Originally posted on Yahoo!'s "The Signal" Blog)

Because the measure is Obama's signature domestic accomplishment, many people are more interested in the impact the decision has on politics than it has on healthcare. We'll see how Obama's odds of reelection move when the decision comes out. It's not a foregone conclusion what this relationship will be–there are those who argue that the having the law overturned will benefit Obama by relieving his campaign of a political liability. But I am not personally that interested in the effect of healthcare on the election. I am more interested in the effect of the election on healthcare.

There are three choices for how to respond to the uninsured when they require health care. The first is to let them die if they are faced with catastrophic medical costs. We as a country have deemed that unacceptable, so we allow people in this situation to receive emergency care which, if they cannot afford it, is ultimately paid for by the insurance companies in the form of higher fees charged by the hospitals in order to absorb these costs. That means the cost ultimately is born by the insured. Second, we can raise taxes and have the government pay for insurance, which conservatives of course do not like. Third, we can find a private solution, like the individual mandate, that provides for full insurance coverage, but does not rely on government taxes. This raises the number of healthy people on insurance, which allows the system to accommodate higher-cost customers–the basic concept behind market-based insurance.

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Election prediction scorecard: PredictWise got 21 of 26 forecasts correct (Originally posted on Yahoo!'s "The Signal" Blog)

As we reach the halfway mark in primary season, PredictWise is pausing to take stock of our predictions so far and how effective the political markets have been in forecasting the winner. We've made calls at least a week in advance for 26 primary contests so far—every matchup, excluding territories and nontraditional matchups in Missouri and Wyoming. Our predictions, which are based on data from the gambling markets at Intrade and Betfair, were correct in 18 of those seven days before the election. At five days out, the odds rose to 21 in 26. Interestingly, they were equally accurate one day ahead of time.

It's easy to assume that the reason we—or anyone else—got some of those predictions incorrect is that our methods are flawed. But one of the principal lessons of this campaign cycle, so far, is that in fact elections are subject to the fall of the dice, and that no model for predicting them can ever be correct in every instance. In other words, we don't want to be right all of the time. That is why we attach likelihoods to all of our forecasts. When we say Rick Santorum has a 50 percent likelihood of winning a state, we literally mean he will win every other time. When we say 20 percent likelihood, we mean it will happen 1 out of 5 times.

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Previews: Louisiana (politics) and Kentucky (basketball) (Originally posted on Yahoo!'s "The Signal" Blog)

Rick Santorum is going to win the Louisiana primary today with 97 percent certainty. Then he is highly likely to lose the three following primaries on April 3 to front-runner Mitt Romney: Washington, D.C. (Romney at 96.3 percent), Maryland (Romney at 97.1 percent), and Wisconsin (Romney at 90.6 percent). More importantly, Romney is now 91.1 percent likely to capture the Republican nomination, according to prediction market data.

OK, I have provided the necessary political commentary for the day. Now let us return to the more exciting contests.

Kentucky continues to dominate the NCAA tournament, and now stands at 35.5 percent likely to win the tournament; Kentucky's rise from 26.7 percent to 35.5 percent is an interesting story. Its largest sustained jump in likelihood did not occur during any of its three tournament wins (which were highly anticipated), but during Michigan State's loss. That loss (which we gave a meaningful 33.5 percent likelihood) ensured that the winner of the South Region would face no higher than a fourth seed in the semifinal contest. Kentucky is strongly favored against No. 3 Baylor to make that trip to the Final Four.

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NCAA Tournament: Kentucky still dominating odds going into Sweet Sixteen (Originally posted on Yahoo!'s "The Signal" Blog)

Once again, we're taking a break from politics to discuss the most pressing upcoming contest in America: March Madness. Kentucky heads into the Sweet Sixteen in the same place it was a week ago, the overwhelming favorite to win the championship at a 29.9 percent likelihood of victory. Mitt Romney is slightly more likely to win the Presidency than Kentucky is to win the NCAA crown, but let's be fair: Kentucky has four rounds left, while Romney only has two.

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Romney’s odds in Illinois safe as polls open (Originally posted on Yahoo!'s "The Signal" Blog)

Mitt Romney is poised to capture an easy victory tonight in the Illinois primary. The prediction markets currently give the former governor a 97.4 percent chance of winning the state, with Rick Santorum trailing at just 3.2 percent. We've seen Santorum overcome long odds before, but not at this steep of a disadvantage going into the day.

The following chart shows the progression of our forecasts, compared with the poll-based forecast that the New York Times' Nate Silver publishes on the FiveThirtyEight blog:

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NCAA Tourney: Kentucky is the favorite team and East is most wide-open region (Originally posted on Yahoo!'s "The Signal" Blog)

Kentucky is the top ranked NCAA basketball team in the country and the clear favorite to win the tournament at 26.7 percent odds. Those are tremendous odds, given that the team has to win six straight games against the best teams in the country (if you county an opening round game against 16-seed Western Kentucky).

The presence of Kentucky makes the South region the most dangerous for other top ranked teams: No. 2 Duke, No. 3 Baylor, and No. 4 Indiana all have the lowest likelihood of winning the title compared with the other teams of similar rankings.

The East is the most wide-open region due to the ineligibility of top ranked Syracuse's start center, Fab Melo. Second ranked Ohio State is 12.1 percent likely to win the tournament, the highest odds for a team not in the top seed. Fifth ranked Vanderbilt is the most likely seed outside the top 4 to escape their region.

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Gingrich leads narrowly in Alabama and Mississippi primaries (Originally posted on Yahoo!'s "The Signal" Blog)

After a Super Tuesday night that was more protracted than it was surprising, Tuesday contests in Alabama and Mississippi look like they'll be two of the more exciting primaries of the season. Our predictions, based on the political prediction markets, give a slight edge to Newt Gingrich in both states: 64.4 percent likely to win in Alabama and 55.7 percent likely to win in Mississippi.

Gingrich's only two victories so far have been in neighboring Georgia and South Carolina; a double win tonight would put him firmly on the path to sweeping the five states traditionally considered the heart of the Deep South. Our forecasts have Gingrich with a razor-thin lead in Louisiana, the fifth state in this regiona lead that will surely widen if he does well tonight.

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Romney’s odds in Ohio climbing steadily (Originally posted on Yahoo!'s "The Signal" Blog)

The chart shows the progression of the likelihood of victory in Ohio since the morning after the last round of primaries. This is a great example of the value of prediction markets. The markets were able to adjust quickly, in real-time, to new information. They are also able to incorporate more information, like Romney's upward momentum in Ohio and his superior organization:

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Romney goes for the kill on Super Tuesday (Originally posted on Yahoo!'s "The Signal" Blog)

We have held all along that Mitt Romney will be the Republican Party's nominee for president. Since his double win last week in Arizona and Michigan, his odds in the prediction markets have jumped above 80 percent. That's likely to go up again after Super Tuesday, since the most likely scenario has Romney winning 7 of the 10 states, Rick Santorum taking 2, and Newt Gingrich winning his home state of Georgia.

The question is whether voters in future primaries decide the race is effectively over after Tuesday and flock to Romney, or whether Santorum lives to fight another day in the polls. A big-enough night for Santorum could prolong his eventual defeat, since polls tend to be more short-sighted than markets. Here are the odds for his odds in today's individual elections.

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Romney has no chance in Massachusetts in November, forget my prediction (Originally posted on Yahoo!'s "The Signal" Blog)

I'd like to examine one rather glaring error in the fundamental model for elections I have created with Patrick Hummel and explain why we're not going to fix it: Massachusetts stands at 74.4 percent likely to go to Obama, while all external signs dictate that it is a much safer bet for the Democrats. This is because we currently assume Mitt Romney will win the nomination, as the prediction markets suggest.

There is overwhelming empirical evidence that presidential candidates get abnormal returns in their home state. In 1984, for example, Walter Mondale still won Minnesota even though the other 49 states all went to Ronald Reagan. (Mondale also held down Washington, D.C.) So Yahoo! Labs' Patrick Hummel and I tested this theory with data from the last ten election cycles. We determined the size of that abnormal return, calibrated on those past races. This boost shifts Massachusetts from a Democratic lock to a Democratic-leaning state. It currently flips for Romney if Obama's approval rating falls to 41 percent, well before similar states.

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