Touts Bet Obama to Win Iowa

I brought my twins to a playground near our synagogue before I picked up my 6 year-old from Hebrew school today. Sharing the playground was another congregant, who also has twins. If I’m not mistaken he is in the process of starting a hedge fund. He asked me if I blog about subjects other than the I-P conflict and I said yes. We got to talking about the presidential campaign and he told me about a fascinating website which touts odds, among other things, on presidential campaigns. Not being much of a betting man (I once won a $4 bet at Santa Anita), I could easily dismiss betting as a serious form of predicting political outcomes. But I’ve also read that economists have created such pools as ways of predicting all sorts of social outcomes and that it is a serious venture.

Intrade gives Barack Obama a 58% chance of winning the Iowa primary. It gives him a 47% chance of winning the New Hampshire primary to Clinton’s 50%. Of course, if Obama DOES win Iowa then the odds would shift further in New Hampshire in his favor and perhaps tout him as winner there as well. Currently, the odds give Clinton a 39% chance of winning the presidency to Giuliani’s 37% (which to me seems utterly ludicrous) and Obama’s 18%.

For the doubters among you, read this from Fortune Magazine written just after the 2004 election:

You’ve heard of prediction markets…where you can bet real money on the outcome of elections and many other events. What you may not realize is how uncannily accurate they have proven and how well they predicted this election, one of the closest ever by the only measure that counts, electoral votes. Despite Bush’s substantial popular-vote majority, his electoral margin was just 34 votes, making this race the second-tightest in 88 years (after the 2000 squeaker). That’s a contest that’s tough to call.

Yet on election morning the Iowa Electronic Markets continued to predict a Bush victory, as it had since July. Same story at TradeSports.com, where you could also bet on the outcome in each of the 50 states. If you had examined the tally that morning, you could have gone to bed early that night, for it correctly predicted the winner in every state. That is, it foretold not only that Bush would win, but also by precisely how many electoral votes.

That performance beat any poll, which is no fluke. Economists who study prediction markets find that on the whole, they predict election outcomes far more precisely than polls do. It seems that lots of people, each trying to be smarter than the others, with real money at stake, are collectively tough to beat–in fact, as far as anyone can tell, impossible to beat.

All this explains the desperation of dredging up Obama’s past well-known drug history and having Bill Clinton stir fear in potential voters about Obama’s untestedness–as if the 1992 Bill Clinton was any more tested in national politics. The Clinton camp knows Obama is surging and is beginning to worry. Otherwise, why pull out a former president to attack an also-ran candidate? Disclosure: I support Obama in the Democratic primary.