Presidential Polls 2012: The Big Statistic That Proves Obama Will Win the Election

Rather than spending your time rooting through the myriad polls published on the upcoming presidential election, go to Intrade.com and look at the odds posted there. There are many theoretical reasons why open betting markets should outperform polling, mainly with regard to incentives (those facing bettors as opposed to those facing poll respondents), and information itself (which is dispersed and subjectively perceived). Since traders are forced to put their money where their mouth is, so to speak, any profit-motivated trader is incentivized to signal his or her true beliefs about the election outcome. Someone answering a call from a pollster, however, is probably chiefly motivated to cure the overwhelming boredom that must precede taking such a call.  Furthermore, only those people with the belief that they know more than the rest of market are rationally motivated to trade. Anyone believing otherwise would likely expect to lose their wager and would be better off as a market spectator. 

As of Thursday morning, traders on Intrade.com are collectively predicting a 67.3% chance of Obama's reelection. The site correctly predicted Romney's GOP nomination and nearly perfectly foresaw the outcome of the last residential election (see here for a comparison of the actual results to Intrade's predictions). In contrast to Intrade's prediction of an Obama victory, the polls (summarized here by RealClearPolitics) are indicating a dead heat between the candidates. If you are swayed by the polls and think Obama is in danger of losing, rest assured that the best information available predicts an Obama win.

There is another good reason to expect Intrade to predict accurately relative to polls: insider trading.  Poll respondents are (as far as we know) randomly selected, whereas market traders are self-selected. If someone is privy to nonpublic information, they could trade on that information with impunity (to my knowledge, Intrade.com customers must identify themselves solely to comply with anti-money laundering laws but do not have to establish a lack of inside information to be allowed to trade). A potential trader could only be stymied by rules and regulations outside of the website itself (for instance, if the Obama campaign prohibited its employees from trading on the site). If the fix was in, as I suspect it was in Ron Paul's GOP nomination run, one could easily see that fact at Intrade.com. 

In short, if you are a Romney supporter, prepare to be disappointed. If you are a Democrat, a hearty congratulations is in order: you can look forward to another four years of ... whatever it is you like about Obama (I never did figure that out).

How much do you trust the information in this article?

A.D. Gill

I enjoy arguing and think there is much to be learned in adversarial discussion.

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