Wednesday, May 18, 2016

Prediction markets and understanding politics

A post in a closed group on Facebook suggested that we look to prediction markets for information on politics, and try to use the information they offer in the manner that business journalists use financial markets. 
     The trouble is that business journalists know as much about business as sportswriters know about sports and political journalists know about politics. Fortunately, students of politics have it easier than students of sports or business because politicians have to explain themselves to get what they want. If you want to understand Trump, the first step is to look to his own words, the second step to look to words of the politicians who are his allies, and the third to look to the words of the politicians who are his rivals and enemies.
     As for prediction markets, the efficient markets hypothesis says they integrate publicly available knowledge. That does not mean that they are accurate, just that anything more accurate is going to cost you.

     The odds on a Republican winning the Presidential election (getting a majority of the two-party vote) are about 1 in 3 at the Iowa Electronic Market .  If I know better, if I know that Trump is a virtual lock because he is the more centrist of the two candidates and because the country is generally perceived to be on the wrong track, it may be that that is because I have been studying politics for 30 years.
     Should you trust me? I have not, so far, put any money down on Trump at Iowa. But the people who bought Trump in the Republican convention market at IEM are doing well so far, as today's graph shows.

Are the prediction market odds a good guide to Trump's actual chances?  Were they a good guide to his chances the day after the Iowa caucuses?  All we can say with any degree of assurance is that they are a better guide than any other you can get for free.  
    Trusting me isn't free.

8 comments:

  1. Okay, I for one will bite: how is Trump the more centrist of the two candidates?

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  3. According to ontheissues.org, Donald Trump is a "moderate conservative while Hillary Clinton is a hard-core liberal."
    http://www.ontheissues.org/Donald_Trump_VoteMatch.htm
    http://www.ontheissues.org/Hillary_Clinton.htm

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    1. Come on. Trump doesn't take positions such that they can be situated with any degree of stability on the standard political spectrum (based on attitudes to equality). Consider just the first item on the oneissues list: abortion. However, if we instead adopt an alternative conception of the spectrum, the one that bases it on attitudes regarding how we should aim to respond to conflict, i.e. dovish (left) or hawkish (right), then Trump's consistently on the far right.

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    2. On your alternative concept of the spectrum, Hillary Clinton, who supported the Iraq War, the War in Libya, and intervention against ISIS is even further right than Trump.
      But Trump is in fact much more egalitarian than Hillary Clinton, if by egalitarian you mean supporting better life chances for ordinary Americans.

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    3. I still think it's a mistake to situate Trump on the spectrum (mine or any other) on the basis of the positions he's taken. Rather, given his extreme fickleness, his positions should be recognized as pure bullshit (in Harry Frankfurt's sense). Words have no serious, practical meaning for him; rather, they're indicative of the aestheticism typical of fascists.

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  4. A better comparison might be with gamblers in sports, as of 9/27/16 : "A victory by Mr. Trump remains quite possible: Mrs. Clinton’s chance of losing is about the same as the probability that an N.F.L. kicker misses a 48-yard field goal." http://www.nytimes.com/interactive/2016/upshot/presidential-polls-forecast.html

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    1. [During the 2008 Democratic nomination process, Hillary Clinton missed the equivalent of an extra-point against Obama according to the early polls, no? ]

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