Romney is still out front in the prediction markets (Originally posted on Yahoo!'s "The Signal" Blog)

The latest aggregated polling trend from Real Clear Politics has Newt Gingrich at 31.3 percentage points to Romney's 20.3 percentage points (a massive lead), but the prediction markets still give Romney nearly 50 percent likelihood of attaining the Republican nomination, precisely 48.3 percent, to Gingrich's 32.7 percent.

In this article, I present three main scenarios for the first five primary contests, leading to six possible outcomes over the subsequent five weeks. One scenario leads to a long battle between Gingrich and Romney. One scenario leads to either Gingrich victory, a long battle against Romney, or a long battle against another candidate. One scenario leads to either a Romney victory or a long battle against another candidate. Weighting the likelihood of all of these scenarios, and their possible outcomes, the markets conclude that Romney is more likely to prevail, but both candidates are less than 50 percent to gain the nomination.

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Romney falls below 50 percent, Gingrich still charging (Originally posted on Yahoo!'s "The Signal" Blog)

On Thursday Mitt Romney fell below 50 percent likelihood to attain the Republican nomination for the first time since Oct. 3.

The chart shows the likelihood of attaining the nomination for the four leading candidates since Thanksgiving morning. A slight downward trend for Romney turned into a downward slide directly following Sunday's Union Leader endorsement of Newt Gingrich, shown with the purple line:

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Payroll tax debate has 2012 implications (Originally posted on Yahoo!'s "The Signal" Blog)

As the effective income tax rate has lessened, the payroll tax is an increasingly large share of the median American family's tax bill and thus has become increasingly salient to many Americans. The chart, constructed from Congressional Budget Office data, shows how taxes have changed in the past few decades for the middle quintile of American households (i.e., those are between the 40th and 60th income level). In 1979, payroll and income taxes were about the same percentage of the median family's tax burden. Now the payroll tax is approaching 70 percent of the median family's tax burden and the income tax is closer to 20 percent.

Not only is the payroll tax increasingly meaningful to many Americans, the payroll tax rate has a very direct impact on the U.S. economy; the chief economist for Moody's predicts that returning payroll taxes to 6.2 percent for employees and employers would shave about 1.7% percent off of GDP. The current payroll tax deduction provides about an additional $1,000 per median American family; the proposed payroll tax deduction would provide 50 percent more, or $1,500 per median American family. Since most American families do not have excess income right now, they would spend much of the extra money stimulating the economy.

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People are starting to bet on Gingrich (Originally posted on Yahoo!'s "The Signal" Blog)

Nate Silver argues in the New York Times that we should not judge Union Leader endorsement (given to Newt Gingrich on Sunday) on whether the candidate wins, but on whether the candidate gains in the New Hampshire polls.

The markets tell a different story: The endorsement's biggest benefit will not be in New Hampshire at all. It will be in helping Gingrich become the final anyone-but-Romney candidate. The right wing Daily Caller noted this possible benefit; it quotes Republican consultant Dan Hazelwood that "[the endorsement] is a blow to everyone [else] trying to be the anti-Romney."

The chart shows the likelihood of winning the Iowa and New Hampshire primary contest for Gingrich and Romney over the last two days. The likelihood in New Hampshire moved slightly on Sunday morning, but is very flat. Romney is still in complete control with 78.1 likelihood of victory. Not shown on the chart, the race for second place in New Hampshire also is steady, with Gingrich leading with 39 percent likelihood. Yet, the likelihood in Iowa has changed dramatically, with Romney's small lead now a large lead for Gingrich (36.0 percent to Romney's 24.5 percent).

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Why Newt Gingrich is a different type of anyone-but-Romney candidate (Originally posted on Yahoo!'s "The Signal" Blog)

With his polish and confidence, Gingrich looks and sounds like a much more plausible anyone-but-Romney candidate than his immediate predecessors in that spot proved to be. Yet the prediction markets still call out Romney as the heavy frontrunner, no matter what the polls may be saying today.

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Shift in national popular polls favors Obama (Originally posted on Yahoo!'s "The Signal" Blog)

President Barack Obama is now leading in polls against each of the individual Republican opponents he may face on Election Day. And for the first time in months, Obama is leading against a "generic Republican" opponent. It's true that polls conducted 350 days before an election have very little predictive power–but they are a meaningful indicator of the public mood as the primary season lurches into gear.

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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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