A bad bet? Freddie and Newt make markets cautious (Originally posted on Yahoo!'s "The Signal" Blog)

The polls have Gingrich moving towards first place with 17.6 in Real Clear Politics' latest aggregated trend, while Herman Cain is falling fast and Mitt Romney is staying steady.

The prediction markets, such as Betfair and Intrade, have Gingrich solidifying his second place standing at 15.3 percent likelihood to win the Republican nomination, but well below Romney at 68.5 percent likelihood.

Polls describe the world as it is today and prediction markets describe the world on Election Day. The chart below shows how they vary over the last 10 days and the news over Gingrich's involvement with Freddie Mac is a perfect illustration of why they differ.

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Last week was good for Newt Gingrich in prediction markets (Originally posted on Yahoo!'s "The Signal" Blog)

Mitt Romney remained the clear frontrunner for the nomination with a 68.9 percent likelihood of winning, but Gingrich is the latest anyone-but-Romney candidate at 14 percent likelihood. The former speaker of the house benefited as Herman Cain's sexual harassment problems grew worse and Rick Perry had a memory failure at Wednesday night's Michigan debate.

It is not just me, political pundits, following the recent polls, are finally agreeing that Republican voters are taking a serious look at Gingrich. Yet, his 14.0 percent likelihood of gaining the nomination says less about Gingrich and more about Romney. Gingrich is the most recent person to take the largest share of the likelihood that Romney does not get the nomination, currently at 31.1 percent. Despite his time as speaker of the house, current Republican voters have not vetted him as intensely as they they have previous Romney rivals and, at 14.0 percent, it is still unlikely that he will be propelled to victory after they do.

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Predictions: From stocks to politics to Twilight (Originally posted on Yahoo!'s "The Signal" Blog)

In professional football the Green Bay Packers are undefeated half way through the 2011 season–and forecasters in the prediction markets give them a 27.8 percent likelihood of winning the Super Bowl. The new Twilight movie, The Twilight Saga: Breaking Dawn Part 1, opens next weekend–with the markets predicting a huge opening weekend box office receipt of about $152.9 million, with a running total of $318.5 million over the first four weekends the movie is out. There is about a 25-30 percent likelihood that the global energy and contracting firm Halliburton will see its stock price top $40 per share in a month's time. (It's currently trading at 37.21.) And in the global political arena, the markets give Ali Abdullah Saleh, the president of Yemen, a 25 percent likelihood of losing power before the end of the year.

All four of these above predictions are derived from different markets. The sports prediction from Betfair, the box office prediction from the Hollywood Stock Exchange, the stock prediction from the options market, and the political prediction from Intrade. All of these markets have different trading protocols, which can produce distinctive quirks in their prediction models. Among other things, different transaction costs shift incentives (and Hollywood Stock Exchange does not use real money) and different accounting procedures require different methods of calculating probabilities from pricing.

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Handicapping the election-year math in Congress (Originally posted on Yahoo!'s "The Signal" Blog)

In the Senate elections, the campaign math is not favoring the Democrats. Simply put, Democrats have many more vulnerable seats up for grabs next November than Republicans do. Democrats control 23 of the 33 seats up for election next year—and at least six senators who caucus with the Democrats are going to retire, while two more Democratic incumbents have yet to confirm whether they will run for re-election. The number of Republican senators who are not up for re-election this cycle, meanwhile, is just two.

In the House elections, the 2010 Census looms over the 2012 elections—in a way that again favors the Republicans. In the first election after every census the government reapportions the seats between the states to reflect population shifts. In general, seats were lost in the Northeast and Midwest, where Democrats have traditionally performed well; and the Southeast and Southwest—traditional strongholds for the GOP–gained seats. Republicans control most of the state legislatures in the 10 states picking up additional House seats– including 4 seats in the heavily Republican state of Texas–the new congressional districts will likely be drawn up with boundaries favoring the Republicans. That is the simplest kind of political math.

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Accuser’s press conference cuts Herman Cain’s odds in half (Originally posted on Yahoo!'s "The Signal" Blog)

Just before it was announced that a woman and her attorney, Gloria Allred, would be holding a press conference Monday, the prediction markets gave Cain a 6.8 percent chance of becoming the Republican Party's presidential nominee. By the time the press conference ended, Cain's chances in the prediction markets had dropped to 3.8 percent.

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Taking a serious look at Newt Gingrich (Originally posted on Yahoo!'s "The Ticket" Blog)

Gingrich is now the third most likely Republican nominee–still way behind Romney, but just behind a still falling Perry. Thanks to his tenure as House Speaker, Gingrich is the most thoroughly vetted of all of the potential nominees. Of course, Americans have notoriously short-term memories when it comes to politics; Gingrich resigned in 1998 amid very low popularity following the government shutdowns of 1995 and 1996 and the perceived hypocrisy surrounding the Monica Lewinsky scandal and President Clinton's impeachment. You can still expect his far from scandal-free personal life to be a major issue for the religious right as social conservatives weigh his candidacy going forward.

Yet, despite such baggage, the good news for Gingrich is that the field of likely anti-Romney candidates is steadily thinning–leaving him the likeliest candidate for reconsideration among conservative GOP voters. Ron Paul is a libertarian and while he has maintained consistent support and attracted a passionate following, he has not broken into the mainstream of Republican conservatism. Jon Huntsman has been running as a moderate, gaining no traction with the Republicans. And Michelle Bachman and Rick Santorum have positioned themselves as hardline conservative candidates–in a way that has so far prevented them from garnering serious support outside the social-conservative camp.

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The health care debate: popularity, probability, and facts (Originally posted on Yahoo!'s "The Ticket" Blog)

What do you regard as the most important factor in the health care debate? If I wade into this question, would you prefer to hear more about what the public thinks, what the likely outcomes ahead may be–or what the law itself is likely to accomplish going forward?

What people believe about the likely impact of a given piece of legislation can be markedly different from its actual impact. It seems likely that the Affordable Care Act, if fully implemented, will end up creating benefits for a great deal more than the 18 percent of Americans who think it will based on the new Kaiser Family Foundation poll.

Also, what people want to happen can also be very different from what will happen. At the present juncture, Congress and the White House have very little to say about the future implementation of the health care law; that's much more the province of the courts.

These subtleties are really important if you are planning for the impact of this law on your business–or if you are thinking about campaigning or voting for or against this law.

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Can Rick Perry afford to lose in Iowa? (Originally posted on Yahoo!'s "The Ticket" Blog)

On paper, of course, Perry could absorb a defeat in Iowa without it turning into a fatal blow. After all, Iowa distributes less than 1 percent of delegates to the Republican National Convention. And across the board, the RNC assesses delegates on something close to a proportional basis–meaning that Perry's home state Texas, for example, which has delivered him the governorship by impressive margins, weighs far heavier in the balance than a less-populated state such as Iowa or New Hampshire do. Nevertheless, because Iowa is first, it plays an outsize role in shaping the race's momentum–and in media horse-race accounts of who's up or who's down in the battle for the nomination.

Thus, it is not surpising that the markets suggest that losing Iowa would be fatal to his already low likelihood of wininng the Republican nomination.

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Romney is the likeliest nominee, but Perry is stronger than you think in Iowa (Originally posted on Yahoo!'s "The Ticket" Blog)

Mitt Romney is considered the likely winner of each one of the first five primary contests, but the judgment of the markets in two of the first three–Iowa and South Carolina–is extremely close. As the likely winner of the first five caucuses and primaries, Romney is, not surprisingly, also the likely winner of the Republican nomination. As of today, the markets give Romney about a 2 out of 3 chance of heading up the Republican ticket in November.

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Choosing the Right Prediction and Predictor in the U.S.’s Ongoing Debt Crisis (Originally posted on Yahoo!'s "The Ticket" Blog)

All indicators in the debt crisis pointed to a political dustup that presented very few long-term, real-word consequences for things that genuinely concern most people. Yet press coverage of the crisis often lost sight of both the kinds of outcomes that would really matter in people's lives, and which indicators people could productively consult to learn of likely outcomes. And, same as politics, ordinary citizens should keep in mind a simple caveat lector disclaimer: Always think about what you really want to know–and about what the information you are seeing is actually telling you.

Check at the attatched chart to see how the U.S. had increased short term borrowing costs at the height of last summer's debt cieling crisis. But, long term borrowing costs continued to fall through the entire event.

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