Tuesday, November 6, 2012

Election Results: Intrade, Polls, & Reality

If you're not familiar with Intrade, hop on over to their website and take a look around. Basically, it's a market where people can wager on the likelihood of an event occurring  Elections are always an interesting time because everyone has an opinion and the ability to predict such outcomes would be quite useful. The idea of using Intrade to gauge sentiment is rooted in the belief that people are more likely to work at getting something 'right' when they have skin in the game. It's similar to sports gambling, where the house has a very large incentive to get the odds right, while still offering an attractive payout to the gamblers. With Intrade the participants in the market bid on the likelihood of an event occurring  The bidding process moves the price between $0 and $10 where the probability is 10x the bid. So if the bid for an event is $6.85 that means the Intrade market believes that there is a 68.5% chance that the event will occur as defined. It can be argued that this creates a more authentic type of polling because there is a monetary incentive to get it right and the participants are generally more informed (about what will happen, not necessarily the issues). Of course, many of the perceptions are derived from polls so this may be a case of the dog just wagging the tail. With that said, two maps are shown below for the Intrade predictions and those for traditional polling. It is clear that there is a difference in perception, and this is where things get interesting. After the election results are in we can compare reality to the pre-election predictions. 

For the Intrade data I've chosen to use the electoral map for the night of November 5th 2012, which is posted below.
Figure 1: Intrade electoral prediction map captured 10:16 PST 11/5/2012.
The latest polls indicate the following distribution:

Figure 2: Poll map from the Huffington Post taken the morning of Election Day (11/6/2012 9:00AM PST) 
This post will be updated with a similar electoral map after the election and we'll all see how Intrade, traditional polls, and reality compare. Stay tuned...

Results (11/7/2012)

Okay, so the election results are in (see Figure 3).

Intrade was the best method of predicting the election outcome, so instead of watching the election results live in 2016, just check Intrade the night before, make a few bets with some 'friends' of the opposing party, and rake in a little dough... But while you're stacking your money pile high, just remember, you didn't build that, someone else did...

Figure 3: Presidential results for the 2012 election, very similar to the Intrade prediction from the night preceding the election.  The only discrepancy is Florida which leaned slightly to the left rather than the right...