Interpreting the Predictive Uncertainty of Elections
This paper provides an interpretation of the uncertainty that exists at the beginning of the day of an election as to who will win. It is based on the theory that there are a number of possible conditions of nature that can exist on election day, of which one is drawn. Political betting markets like Intrade provide a way of trying to estimate this uncertainty. It is argued that polling standard errors do not provide estimates of this type of uncertainty. They instead estimate sample-size uncertainty, which can be driven close to zero with a large enough sample. This paper also introduces a ranking assumption concerning dependencies across U.S. states, which puts restrictions on the possible conditions of nature than can exist on election day. The joint hypothesis that the last-day Intrade ranking is correct and the ranking assumption is correct predicts the exact outcomes of the 2004 presidential election and the 2006 Senate election. Although not a test of the ranking assumption, there is evidence that the Intrade traders used the ranking assumption to price contracts in the 2004 presidential election. This was not the case, however, in the 2006 Senate election. Finally, it is shown if the ranking assumption is correct, the two political parties should spend all their money on a few states, which seems consistent with their actual behavior in 2004.
|Date of creation:||01 Sep 2006|
|Date of revision:||01 Aug 2007|
|Contact details of provider:|| Web page: http://icf.som.yale.edu/|
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- Manski, Charles F., 2006.
"Interpreting the predictions of prediction markets,"
Elsevier, vol. 91(3), pages 425-429, June.
- Charles F. Manski, 2004. "Interpreting the Predictions of Prediction Markets," NBER Working Papers 10359, National Bureau of Economic Research, Inc.
- Andrew Leigh & Justin Wolfers, 2006. "Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets," The Economic Record, The Economic Society of Australia, vol. 82(258), pages 325-340, 09.
- Andrew Leigh & Justin Wolfers, 2005. "Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets," CEPR Discussion Papers 502, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Andrew Leigh & Justin Wolfers, 2006. "Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets," NBER Working Papers 12053, National Bureau of Economic Research, Inc.
- Leigh, Andrew & Wolfers, Justin, 2006. "Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets," CEPR Discussion Papers 5555, C.E.P.R. Discussion Papers.
- Leigh, Andrew & Wolfers, Justin, 2006. "Competing Approaches to Forecasting Elections: Economic Models, Opinion Polling and Prediction Markets," IZA Discussion Papers 1972, Institute for the Study of Labor (IZA).
- Snyder, James M, 1989. "Election Goals and the Allocation of Campaign Resources," Econometrica, Econometric Society, vol. 57(3), pages 637-660, May.
- Edward H. Kaplan & Arnold Barnett, 2003. "A New Approach to Estimating the Probability of Winning the Presidency," Operations Research, INFORMS, vol. 51(1), pages 32-40, February. Full references (including those not matched with items on IDEAS)
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