All signs point to a Romney victory except one (a very big one) (Originally posted on Yahoo!'s "The Signal" Blog)

Our full model, which does factor in polls and markets in addtion to fundamental data, still has Obama winning the election with 303 votes.

We searched for an explanation for difference between our full model and our pure fundamental model, by looking for data points that are uniquely different this year than in the historical elections. There is one glaringly obvious factor: the favorability difference between Obama and Romney.

Favorability is shockingly bad for Romney. Pollsters routinely ask questions like, "Do you have a favorable or unfavorable impression of …" for both Obama and Romney. Currently, the Pollster average has Obama with 48 percent favorability and 45 percent unfavorability, while Romney is lingering with 41 percent favorability and 47 percent unfavorability. Romney's consistent negative favorability to unfavorability split is unprecedented in American politics.

 

Click Here for the Full Text on Yahoo!'s The Signal

Akin’s ‘Macaca moment’ could flip the Senate race (Originally posted on Yahoo!'s "The Signal" Blog)

Missouri Republican Rep. Todd Akin woke up Sunday morning with a 65 percent chance of unseating incumbent Democratic Sen. Claire McCaskill in the upcoming Senate race. By the end of the day, after facing a torrent of criticism over his claim that women rarely get pregnant as a result of "legitimate rape," the tables had turned: Our real-time predictions now give McCaskill a 60 percent chance of retaining her seat.

It is not too soon to speculate that this could be the 2012 variety of George Allen's 2006 "Macaca moment," which was instrumental in the incumbent senator's defeat. That narrow loss, as well as several others, cost the Republicans control of the Senate by one seat that year.

The Senate hangs in an equally fine balance this year. Before Akin's odds went south, the Republicans were on track to control 50 seats to the Democrats' 49, plus one independent. While that figure will almost certainly wobble between now and November, it is eminently possible that one seat will make the difference.

Click Here for the Full Text on Yahoo!'s The Signal

Missouri GOP senate candidate drops heavily in prediction today due to rape comments

Missouri Republican senate candidate Todd Akin started the day with a 65 percent likelihood of unseating the incumbent Democratic Senator Claire McCaskill. Earlier today footage of Mr. Akin's appearance on The Jako Report became public. In response to a question about legalized abortion for rape victims, Mr. Akins stated that, "From what I understand from doctors, that is really rare. If it is a legitimate rape, the female body has a ways to try to shut that whole thing down."

Anticipating the effect of these comments on the senate race between now and Election Day, PredictWise's real-time predictions have moved to 70 percent likelihood for Senator McCaskill. We expect this prediction, which includes polls, prediction markets, and fundamental data, to move even further in the next few days when the first polls are conducted that include these comments and they likely catch up with the prediction markets.

 

Romney’s path to victory goes through Florida, Ohio and Virginia (Originally posted on Yahoo!'s "The Signal" Blog)

Mitt Romney has one clear route to victory on Nov. 6: In addition to winning all the states we know he will win, he has to capture Florida, Virginia, Ohio and at least one of five other swing states.

It's very possible Romney will win more than that. Our model of presidential elections, for example, has him with a 17.2 percent chance of winning Pennsylvania. Were he to manage that, however, it would almost certainly be part of a national landslide in his favor that includes most of the swing states. While I'm sure the Romney campaign would be delighted to win Pennsylvania, if it manages that it will be because Romney won far more than the 270 electoral votes he needed.

Click Here for the Full Text on Yahoo!'s The Signal

With dozens of scenarios, control of the Senate is a toss-up (Originally posted on Yahoo!'s "The Signal" Blog)

As political nail-biters go, the most interesting battle in the 2012 election does not involve anyone named Obama or Romney. While the general election is going to be decided in six or seven swing states that have a reasonable likelihood of going for either presidential candidate, control of the Senate rests in a much more complex tangle of eight or nine states. Right now, our model of polls, prediction markets and historical data suggests that Democrats have a 48.7 percent likelihood of retaining control of the upper body.

The Democratic Party currently has 53 senators in its caucus to the Republican Party's 47 senators. But the way the cards fell with the 33 seats up for re-election this year was not kind to the incumbent party. Democrats are defending 23 seats while the Republicans are defending only 10 seats in this year's election. Stated another way, the Democrats have just 30 seats confirmed for the next session to the Republicans' 37 seats among the 67 total that aren't up for re-election for two or four more years.

Since the vice president casts a tie-breaking vote in the Senate, the Democrats must win 20 seats and the presidency or at least 21 seats to retain the Senate. The Republicans must win 13 seats and the presidency or at least 14 seats to take over the Senate.

Click Here for the Full Text on Yahoo!'s The Signal

Ryan pick damages market odds of Romney victory in Florida (Originally posted on Yahoo!'s "The Signal" Blog)

When the markets were leaning in the Pawlenty/Portman direction, they gave Romney a 70.7 percent chance of winning the state of Florida. With Ryan officially on the ticket, Romney is clinging to a 56.3 percent likelihood of taking the state. We expect polls to follow this path in the next few days.

Ryan's budget proposals will be at the center of the presidential campaign in Florida. For better or worse, his policies, if enacted, would probably cost the state's older residents. Ryan's budget calls for cuts to Medicare in the form of reduced services and increased premiums. He has also pushed for privatization of Social Security. Both of these measures would offset planned tax cuts that would drop the top income tax rate from 35 to 25 percent.

Click Here for the Full Text on Yahoo!'s The Signal

Prediction markets leaning toward safe choice for Romney’s running mate (Originally posted on Yahoo!'s "The Signal" Blog)

With anywhere from days to weeks remaining in the long and tortured period of speculation over Mitt Romney's running mate, the Signal is increasingly convinced that either Ohio Sen. Rob Portman or former Minnesota Gov. Tim Pawlenty will get the nod. The prediction markets currently give them a 35 percent and 16 percent chance of victory, respectively. In other words, there's better than a 1-2 chance that Romney will opt for the safest choices available.

You could be forgiven for needing a refresher on which of these two politicians is which. Portman and Pawlenty are both white males in their fifties with records as reliable conservatives, not firebrands. Either would provide Romney cover from the right while providing a sense of prudent sensibility to the rest of the country. These men both provide a moderate benefit, credibility with the right, with little potential cost.

Click Here for the Full Text on Yahoo!'s The Signal

Tight presidential election enters August

The last two weeks has been relatively quiet in regard to the race for the presidency, but expect some more noise soon. The two most serious events of the last two weeks have been the mass shooting in Colorado and Romney’s foreign adventure. Neither candidate appears prepared to make gun control an issue in the election. It is also unlikely that foreign policy will be an issue in the election, as domestic social and economic policy routinely dominates foreign policy for most Americans. Currently Obama is 59.2 percent likely to win reelection.

Sources: Betfair, Intrade, HuffPost Pollster, RealClearPolitics, etc., (all noted here on PredictWise)

Romney’s path to victory includes picking up Ohio and Virginia, currently leaning towards Obama, and one additional state; that assumes he holds Florida where he is currently 70.8 percent likely to win. First, both Ohio and Virginia are razor tight races and, if anything, have closed slightly since we released our state-by-state model two weeks ago. Second, the most likely extra state for Romney continues to be Iowa, where Obama is 56.6 percent likely to win, after New Hampshire briefly flirted with the title early this week.

Movements will be more frequent in the coming weeks. First, despite the declining marginal value of economic indicators as we approach the election, there will still be a lot of noise around the July job numbers that will be released on Friday morning. The current expectation is somewhere around 100,000 new jobs. Second, the Republican national convention kicks off less than four weeks, if Romney chooses to release the vice-presidential pick prior to the formal nomination, it will be soon. Despite recent talk of Marco Rubio (9.2 percent likely) and Condoleezza Rice (5.9 percent likely), we continue to provide over 50 percent likelihood that the vice-presidential pick will be a more conservative choice of either freshmen Ohio Senator Rob Portman (29.1 percent likely) or two term Minnesota Governor Tim Pawlenty (23.7 percent likely). Second term South Dakota Senator John Thune, with similar credentials and demographics as Portman and Pawlenty rounds out the top five with 6.7 percent likelihood.

Follow the state-by-state and national presidential predictions in real-time here on PredictWise.

The Signal prediction: Obama maintains fragile hold on 303 electoral votes (Originally posted on Yahoo!'s "The Signal" Blog)

In February, when, on the the Signal, we first unveiled the model for predicting presidential elections, we wrote that, "while campaigns and candidates matter, they don't matter all that much. Despite the varying quality and positions of the campaigns and candidates over the last 10 presidential elections, variables beyond their immediate control describe the outcome very well."

At the time, our model predicted that Barack Obama will win reelection with 303 electoral votes. In the past five months, as the campaigns have spent tens of millions of dollars on advertisements and fought tooth and nail for the smallest advantages, the model has remained steady. Only Virginia has switched columns at any point, wavering between camps as our predictions show and incredibly tight match there. At the moment, we have Obama eking out a victory in Virginia, keeping him at 303 electoral votes. Should he lose the state, he would retain the presidency with 290 votes to Mitt Romney's 248.

Click Here for the Full Text on Yahoo!'s The Signal

A response to David Leonhardt's "When the Crowd Isn't Wise"

David Leonhardt wrote an excellent piece in the New York Times on both the effectiveness and limitations of prediction markets.

Mr. Leonhardt was inspired to write his column after prediction markets, notably Intrade, predicted that there was a 70 percent likelihood that the Supreme Court would overturn the Individual Mandate, which ultimately did not happen. This led to an explosion of criticism of Intrade on Twitter and elsewhere, with most commenters concluding that Intrade being "wrong" in this sample size of one proves that it isn't a useful tool for prediction.

We have a few points to add to this discussion, both in agreement with Mr. Leonhardt and in defense of markets.

First, we wish that Mr. Leonhardt had mentioned one of the primary advantages that prediction markets have over experts: while experts generally forecast a binary outcome for an event ("will happen" or "will not happen"), markets provide a probability of each outcome. Forecasting with probabilities versus binary outcomes provides a lot more information, but it is nuanced. For any given prediction, the only way that a market (or expert) can be easily understood as right or wrong is if it predicts with 100% certainty that an event will happen and then it does, or with 0% certainty that an event will happen and then it doesn't. This binary framework is easier for us to grasp, but it is not reflective of reality.

For those willing to consider the nuances, we can more accurately judge a probability forecast on two different rubrics: its calibration (i.e., percent that come true versus probability) and its precision (i.e., how far towards 0 or 100 percent it goes, while maintaining its calibration).

Calibration can be a tricky concept to grasp, but here's a simple example: If Intrade has markets for 10 different events and predicts a 90% likelihood for each of them to happen, 9 out of the 10 events should happen. Importantly, 1 out of the 10 should NOT happen. If all 10 happen, the markets were mis-calibrated, just as they were mis-calibrated if only 8 happen.

As for precision, as Mr. Leonhardt correctly pointed out, in times of low information the market should be less precise. This is certainly the case when it comes to a Supreme Court decision. To some extent, the market itself recognized that this was a difficult event to predict, and responded accordingly. That is why the markets stalled at 70 percent likelihood on the Supreme Court ruling rather than going up to 80 or 90 percent. The ex-ante information (and, to an extent, the ex-post information backs up the ex-ante) pointed to a likely overturn of the mandate, but the market was not willing to move into 'certain' territory. Further, the market also revealed a key indicator of low information on top of the low precision forecast. When the 'spread' of a contract – the difference between what people are willing to pay and what people are willing to sell for – moves past 5 percentage points, we consider the market to be illiquid. It did that prior to the Supreme Court ruling.

For markets with more information (such as the upcoming presidential election), we can expect far more precision, and as the sample size grows (such as the numerous markets for state-by-state Electoral College, senatorial, and gubenatorial elections) we can expect far better, and easier-to-understand, calibration.

We also wish that Mr. Leonhardt mentioned one other advantage: prediction markets update in real-time while experts update at will. Markets are always the most recent aggregation, and are available whenever you need the data. Providing easier access to this real-time data was one of the primary motivations for us to create PredictWise.

Mr. Leonhardt's conclusion, if we may paraphrase it, was dead on: prediction markets aren't perfect, especially for certain types of events, but they are still a very useful – perhaps the most useful – tool for prognostication. We agree with his suggestion that the future of predictions is to find innovative ways to combine the data gleaned from multiple sources (markets, polls, experts, etc.) to create the best possible predictions. That is our long-term goal at PredictWise.

In the coming weeks we will start providing state-by-state forecasts of the Electoral College, senatorial and gubernatorial elections and these predictions will reflect much more than just raw prediction market prices. The predictions will first debias prediction market prices and then combine them with forecasts derived from debiased-voter intention polling data and fundamental data. In theory, prediction markets should be perfectly efficient and should include all of the polling and fundamental data (i.e., they should not need any corrections or combine with other available data to form more accurate predictions). But, empirically, with extensive academic investigations, we know that is not the case.

Stay tuned.
-David & Andrew