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Forecasting the US Presidential Election


September 15, 2004

If you seek insight into who may win the upcoming Presidential election, there are two ways to gain it: take a poll or book some bets.

(Note: You may need to maximize your browser window to view this page properly.)

The Iowa Electronic Markets are a product of the University of Iowa's business school. In the case of the US Presidential Election winner-take-all market, anybody with $500 can wager up to that amount on the winner of the contest. If you want to buy a contract for Bush, for example, you would do so at the prevailing market rate ($0.58 per contract, as of 9/14/04), and if Bush wins, you get paid a dollar. Kerry appears a better value at $0.42, but this indicates that the market participants discount Kerry's chances of winning and in aggregate would rather pay you $0.16 per contract than bet on him.

Current IEM US Presidential Winner-Take-All Market

A market like this, not surprisingly, approximates something like a capital-assets market (its mechanics most closely resemble a distressed bond market). And it is likely an efficient, and thus predictive, market: individual irrationality on behalf of some participants is likely washed out in the aggregate judgment of all "investors." To bet against them is to bet against the collective wisdom of all participants. They say, as of now, that predicting a Kerry victory is a sucker's bet.

The same logic dictates how both eBay buyers and sellers are kept happy and is what made the much-ballyhooed Terrorism Futures Market such a brilliant idea. A market driven by profit motive and without regulation of insider knowledge is of enormous predictive value. And the trendline of predicted value is a stable one.

Poling data is more volatile. Electoral-vote.com aggregates national state-by-state polling data to create a map of electoral votes, and a consequent tally of total electoral votes if (a) the election were held today and (b) the polls are reasonably accurate. As of 9/14/04, Bush had swung, overnight, from a 269-233 expected loss to a 291-238 lead:

Current Electoral Vote Tally

Current Electoral Vote Map, as of 9/14/04

Electoral Vote-Weighted Current Electoral Vote Map, as of 9/14/04

This cartogram depicts each state by its share of electoral votes. Kerry leads polls in the blue areas; Bush in red areas. The intensity of the color illustrates the magnitude of the lead (the last two images are static as of 9/14/04; click on them for links to updated maps)

Even more impressively, electoral-vote.com has regressed daily polling data to project Bush the winner of the election on November 2 (280-248). Between now and the election, if trends continue, Bush will keep the states he already has, and Kerry will lose Maine to a tie and pick up only New Mexico. It will not be enough.

Predicted Electoral Vote Map on Election Day, as of 9/14/04

More interesting data on the current and past presidential elections can be found here.

The numbers are not with Kerry. Then again, they weren't with Bush, either, in 2000, when virtually every political regression model predicted a victory for the "incumbent" Gore in an environment of unprecedented peace and prosperity. Now that the opposite is true, it remains to be seen whether the numbers will guide us in prediction or confound us again.


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