In Markets We Trust

This election cycle the only thing that has been more worthless in predicting the outcome of primaries than me are the polls. The polls have been way off and all over the place. However, what has been more or less consistantly correct are the markets.

Prediction markets are different than polls in several ways but most of all they are more accurate because they do not calculate anyone's prefrences. Rather, according to Rasmussen Reports, a "'prediction market' or 'futures market' harnesses competitive passions in a way that becomes a reliable... indicator of upcoming events." In other words, because people have to actually put money down on the matter they are more likely to be less biased in their calculations as to who they think will win a particular state. Another reason they are more accurate though is that they dont normally consider the spread or the percentage by which a candidate will win. They only measure who will win.

Prediction markets are highly sensitive and change on a daily basis depending on what events have occured throughout the day or week. For example leading up to NC and IN (which the 4 markets I follow correctly predicted) Obama was given about a 75 percent chance of winning the democratic nomination. His numbers had been higher but in response to Obama's worst 2 week stretch in the media which involved Wright's incendiary remarks and bitter-gate his numbers had fallen. The day after NC and IN he is now given anywhere from 88-90 percent chance of winning the nomination.

I mention all this not because I am trying to convince you that Obama will be the democratic nominee. If you dont get that by now, well, ya... Anyway, I explain all this as a primer for some good news that many Dems may not know yet. Many Dems, including the party's elite, are growing increasingly concerned about the potential for long term divides with in the party that could cause democrats to lose the big one in November. While this is entirely possible, it should be comforting to know that right now, in the middle of the dems most devided moment, with the most critical eye following the party's every tiff and tussle, the markets are still predicting that a Democrat will take the White House back in November. Today, Rasmussen Markets, Intrade and Iowa Electronic are all giving who ever the eventual democratic nomineee is roughly a 60% chance of winning this November. If we are doing this well now, just imagine once we move beyond our differences and unite behind a single candidate.