Perry or Romney, polls or prediction markets (Originally posted on Yahoo!'s "The Ticket" Blog)

The political handicappers who take part in the prediction markets are not saying that Perry would lose a primary election to Romney today. Rather, they are betting that Romney is slightly more likely to win when the primaries are actually held in a few months.

The chart below plots one line showing the collective poll results for Perry in the wake of his announcement alongside another showing how the prediction markets have behaved over the same time:

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Politics vs. the playoffs: Why do predictions change over time? (Originally posted on Yahoo!'s "The Ticket" Blog)

The Phillies season has gone just as expected, with a few bumps along the way. Why has the likelihood changed? Because the march of time has eliminated the uncertainty that a long campaign brings to the outcome.

Then the news of Peyton Manning's injury unfolded, and their likelihood of winning dissipated to near zero. In this situation the movement actually quantifies the value of the missing player (or, in politics, the cost of a campaign mistake).

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Volatility in Baseball Probabilities

Let me pose a question that address in further as this blog progresses: What is the appropriate level of volatility in an efficient forecast? Here is the forecast of the World Series winner for the three most probable teams: Phillies, Yankees, and Red Sox, based on BetFair prices. The probabilities cover the first week and a half of the season. Useful volatility represents new and meaningful information, un-useful volatility is just random movement. While the starting pitching has been a little less than amazing, the Phillies (7-2) are basically achieving at expectation and their probability remains essentially flat. Having to make the playoffs and then win three rounds, it is essentially impossible for them to move much beyond 25% this early in the season, even if they win every game. The Yankees (5-4), just dropped 2 of 3 from the Red Sox (2-7), but remain slightly up and the Red Sox slightly down from the start of the season. Does it seem reasonable that the Red Sex have a 13% of winning the World Series? Does going 0-6 in a 162 game season mean they are 25% less likely to win or does it provide minimal new information? The Yankees are clearly moving upward in because of the probability of making the playoffs the AL East winner increases their chances of doing well in the playoffs, but is that putting too much weight on the first step? These are questions I will address in later posts …