Fifty shades of Dave (davywavy) wrote,
Fifty shades of Dave
davywavy

Selling Clinton, Selling Ken.

There's a very interesting article in the latest Scientific American about Political Futures Trading. In short, this is a system in which someone sets up to sell stock in electoral candidates and then provides a market for trading that stock. At the end of an election, the stock pays out according to the percentage of the vote that candidate got; so, for example, were I to have bought a share in John Kerry at US50c in 2004 I'd've lost US1.7c when that share paid out US48.3c after results were declared.

This all sounds like a bit of fun until you consider that political futures trading markets have been more accurate at predicting results than opinion and exit polls in over 70% of US elections (not just Presidential, but congressional, gubernatorial and others) over the last 20 years. Originally set up by the University of Iowa in 1988 as an economics experiment it quickly became clear that trading systems were a fantastic predictive tool, not just for elections but also in other fields - weather forecasters run trading systems on snowfall, genetics researchers run markets on experimental outcomes. After the 9/11 attacks, it was even suggested that a futures market in terrorist attacks would be an excellent predictive tool. Even though the idea was shouted down, I'd be very surprised if something like it isn't carried out quietly in the intelligence community anyway.

So why do futures markets work so well? The theory is that people are more likely to be honest when actual money is at stake. When asked questions about their intentions by pollsters, people tend to skew their answers according to social pressures and other factors. When acting quietly, on their own and with hard cash at stake, people are more likely to be honest in their opinions. Despite political futures markets being small and the sums of money being traded negligible (the average punter in the 2004 US elections took home less than US$10), the aggregation of honest opinion very quickly builds up to a highly accurate depiction of future events.

Needless to say, as I'm interested in politics I looked up current trading on forthcoming elections from a variety of market providers and the picture is revealing:
Barack Obama is far the front runner to win the US Democratic nomination, in some places trading up to 70 points higher than Clinton. Moreover, if Obama wins that nomination, he's far the front runner in the subsequent presidential elections, trading up to 20 points higher than McCain. If Clinton were to win the nomination then a McCain/Clinton trade is almost neck-and-neck. No wonder Rush Limbaugh is desperate to encourage Pennsylvania Republicans to register and vote for Hilary.

A little closer to home in the London Mayoral elections, whilst being significantly less traded, the market shows Boris Johnson to have a commanding lead of almost 30 points.
I reckon that this could just be the effects of the HypnoBoris.
Subscribe
  • Post a new comment

    Error

    default userpic

    Your IP address will be recorded 

    When you submit the form an invisible reCAPTCHA check will be performed.
    You must follow the Privacy Policy and Google Terms of use.
  • 11 comments