Wednesday, August 31, 2011

Unsettling Presidential Prediction In Election Markets

The Iowa Electronic Markets and the Intrade Prediction Markets trade securities dependent on the outcome of the 2012 US presidential election that when looked at together lead to a disturbing conclusion.

The Iowa Markets security for the majority of popular votes cast for the two major parties shows a greater probability, a higher price, that the Republican presidential candidate will receive a greater number of popular votes than the Democratic presidential candidate.

The Intrade security for the winning presidential party shows a greater probability, a higher price, that the Democratic presidential candidate will win the 2012 presidential election.

Looking at the two securities predictions together leads to the disturbing conclusion that the Republican party candidate will garner more popular votes than the Democratic party candidate, but the Democratic party candidate will receive more electoral college votes and win the presidency.

While it can happen and has happened that a president is elected without the popular vote, I hope in these difficult economic times, the voting for the presidency is not so regional that it leads to a winner that does not receive the greater popular vote. Hopefully as we get closer to election time, the two markets will converge to a single prediction.

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