Polls Schmolls, Give Me Markets!
The Presidential race was closer than ever. You could feel the tension in the air up until the election was called last night. People were fixated on the polls in every battleground state during the days leading up to the election. On any given day, President Obama or Governor Romney could be in the lead depending on which poll you looked at. If you thought there weren’t enough polls, there were some economists and statisticians who were aggregating polling data to create their own polls. For example, today there is a lot of praise for one such statistician, Nate Silver, as he accurately predicted the outcome of the Presidential Election. Some pundits are saying that his approach is genius while others are downplaying the novelty, due to the fact that he can’t do his work without the traditional pollsters’ data. So how do you cut through all the noise out there to get an accurate prediction of who will win? Where can we find an impartial judge? The markets of course!
Over the last month, I have been following an electronic futures market that is based on buying “shares” in markets based on the political races. The Iowa Electronic Markets operated by the faculty of the University of Iowa Henry B. Tippie College of Business has been my baseline for polling information during this election. And I am happy to report, the market got it right.
There are two ways you can participate in the Presidential futures market: 1) vote share market and 2) a winner-take-all market. The vote share market is based on the overall popular vote with payouts being proportional to the percentage of the overall popular vote they receive. The winner-take-all market is based on the overall winner with the $1 payout per share going to the winning side’s shares and $0 going to the loser.
I believe that the market format is probably the most accurate way to gauge how well the candidates are doing: 1) because people are actually “voting” with their money and 2) people don’t like being asked questions by strangers. I work in consumer products and spend time talking to consumers. Some of the problems associated with questionnaires are that people will tell you what-they-think-you-want-to-hear. It can be intimidating to have someone listening to (and maybe recording) every word you say so people have a tendency to want to get the interview over as quickly as possible..
Having people “vote” in a futures market produces some very convincing data. See some of the recent data on the links below. If you really want to dive in deeper, I suggest you cross-reference the graphs with some of the major headlines from this campaign and/or the outcomes from some of the debates.
Four years ago I heard briefly about these future markets and this time around I watched them closely throughout the last few months. For me, it is all about the data. Forget the polls, I’m going to the market.
IEM homepage: http://tippie.uiowa.edu/iem/
Graphs of recent markets:
2012 Presidential Vote Share: http://iemweb.biz.uiowa.edu/graphs/graph_Pres12_VS.cfm
2012 Presidential Winner-Take-All: http://iemweb.biz.uiowa.edu/graphs/graph_Pres12_WTA.cfm
2012 Congressional Control (House & Senate): http://iemweb.biz.uiowa.edu/graphs/graph_Congress12.cfm
2012 Republican House Gains/Losses: http://iemweb.biz.uiowa.edu/graphs/graph_house12.cfm
2012 Democratic Senate Gains/Losses: http://iemweb.biz.uiowa.edu/graphs/graph_senate12.cfm
2012 Republican Nomination: http://iemweb.biz.uiowa.edu/graphs/graph_RCONV12.cfm
Some of the short-hand names for the graphs can be confusing so feel free to check out the prospectuses for each market to get the full details.
Prospectuses of recent markets:
2012 Presidential Vote Share: http://tippie.uiowa.edu/iem/markets/pr_pres12_vs.html
2012 Presidential Winner-Take-All: http://tippie.uiowa.edu/iem/markets/pr_pres12_wta.html
2012 Congressional Control (House & Senate): http://tippie.uiowa.edu/iem/markets/pr_congress12.html
2012 Republican House Gains/Losses: http://tippie.uiowa.edu/iem/markets/pr_house12.html
2012 Democratic Senate Gains/Losses: http://tippie.uiowa.edu/iem/markets/pr_senate12.html
2012 Republican Nomination: http://tippie.uiowa.edu/iem/markets/pr_rconv12.html