Update for 9:20 p.m. PT: The Iowans have spoken, and the GOP presidential caucuses confounded the prediction markets by giving Ted Cruz the edge over Donald Trump.
Trump had been favored by the markets – but when tonight’s results became clear, his stock tumbled to near zero while Cruz’s spiked to the top of the chart. What’s really interesting is what happened to the prognostication for the GOP nomination. The current favorite, according to Predictwise’s aggregation of prediction markets, is neither Trump nor Cruz: It’s Marco Rubio, who put in a strong third-place showing.
On the Democratic side, Hillary Clinton was running neck-and-neck with Bernie Sanders in the caucus tally, but the market forecasters were putting their money on Clinton to prevail. Literally.
Earlier story from 10:16 a.m. PT: After months of mere rhetoric, tonight’s Iowa party caucuses will finally show who’s getting traction in the presidential campaign. And we’re not just talking about Donald Trump vs. Ted Cruz, or Hillary Clinton vs. Bernie Sanders.
We’re talking about traditional pollsters vs. less orthodox prediction methods such as PredictIt, Betfair, the Bing Political Index and the Iowa Electronic Markets.
Polls involve actually going out and asking voters whom they support. In contrast, prediction markets let “investors” put play money or actual money behind the chances for a particular candidate, even if they won’t or can’t vote in the real election. If their prediction’s correct, they win a return on their investment, based on market prices. If they’re wrong, they lose the investment (or wager, if you prefer).
In addition to the markets, other prediction ventures – such as PredictWise, Bing and FiveThirtyEight – factor polling data, prediction market prices and even search-engine queries into computer models to assess the candidates’ chances.
Because the predictions are an all-or-nothing affair, the numbers are different from polling data. For example, polls suggest that the Democratic race between Clinton and Sanders in Iowa is close. Quinnipiac University’s latest poll even gives Sanders a 49-46 lead. But the prediction markets strongly favor Clinton: She’s given somewhere around a 60 to 74 percent chance of coming out on top in Iowa.
The same goes for the GOP side of the campaign: Quinnipiac gives a slim 31-29 edge to Trump over Cruz, while Trump has a 63-33 advantage in PredictIt’s market.
Tonight we’re likely to see a lot of market volatility, says David Rothschild, an economist at Microsoft Research who leads the PredictWise project. “With neither Iowa caucus certain, any outcome is going to affect the race dramatically,” he writes in an assessment posted Sunday.
In Rothschild’s view, Clinton “will basically secure the nomination” if she wins in Iowa. Even if she loses out to Sanders in Iowa and New Hampshire, she’s still likely to hold the advantage.
Meanwhile, a Trump win in Iowa would knock Cruz “almost out of the election,” Rothschild said. If Marco Rubio comes in a strong third, the GOP race could quickly come down to Trump vs. Rubio. However, if Rubio’s support doesn’t match expectations, the impact on his campaign “could be devastating,” Rothschild said.
Prediction markets, like polls, aren’t perfect: For example, when Hillary Clinton won 2008’s New Hampshire primary, her shares enjoyed a brief upward spike in the markets. But that spike quickly faded when Barack Obama made headway in the campaign.
Despite the hiccups, research has shown that political prediction markets have been at least as accurate as political polls, going back to 1988’s Bush vs. Dukakis campaign. It’ll be interesting to watch how tonight’s results shift the fortunes of the candidates – and the fortunes of the gamblers who are betting on them.
Here are some of the most websites to watch:
- PredictWise: Rothschild has put together prediction tables that will be updated every five minutes tonight, showing the perceived chances of victory in the Iowa caucus, the New Hampshire primary and the race for the party nomination.
- PredictIt: This real-money market is an educational project based at New Zealand’s Victoria University of Wellington. It tracks predictions for the early primaries as well as the party nominations and the general election.
- Iowa Electronic Markets: The longest-running academic political prediction market, run by the University of Iowa’s Tippie College of Business, charts the ups and downs of the candidates’ chances to win the Republican and Democratic nomination.
- Betfair: This is a straight-up betting site, based in Malta, that lets gamblers wager on the outcome of the Democratic and Republican caucuses in Iowa the outcome of the Iowa caucus as well as the primary season and the November election.
- FiveThirtyEight: Use the drop-down menu to check the “polls-plus” forecast for Iowa’s party caucuses and other early tests of strength.
- Bing Elections: The folks behind Microsoft’s search engine say they’ll be adding political predictions to Bing’s Election Center.
- Hypermind: Predictions from elite forecasters are aggregated using market mechanisms to size up who’ll win the GOP and Democratic nominations as well as the White House.