Betting on Hillary

BETTING ON HILLARY….Who’s more electable, Hillary Clinton or Barack Obama? Beats me. However, an economics professor at UCLA emailed a couple of days ago to suggest an interesting data point: the Intrade prediction markets. Intrade allows you to bet on two separate questions: (1) Do you think a particular candidate will get the nomination? (2) Do you think a particular candidate will win the presidency?

For Hillary Clinton, Intrade currently predicts a 67.1% chance of winning the Democratic nomination and a 44.5% chance of winning the presidency. What this means is that if Hillary wins the nomination, Intrade bettors think she has a 66.3% chance of winning the election. [See technical note below for an explanation of the arithmetic.]

For Barack Obama, Intrade betters currently have him priced at levels that give him a 32.0% chance of winning the nomination and a 15.0% chance of winning the presidency. Using the same arithmetic, this means is that if Obama wins the nomination, Intrade bettors think he has a 46.9% chance of winning the election.

This is a surprisingly large spread. Bettors think Obama is likely to lose the election if he’s the Democratic nominee, but they think Hillary is a strong favorite to win if she wins the nomination. The electability spread is nearly 20 points. Interesting, no?

Now, there are at least two reasons to be skeptical about this. The first is the possibility that Hillary’s Intrade market is being manipulated. See here for a discussion of this from last year.

The second is the question of whether betting markets like Intrade do a good job of predicting events like elections in the first place. I’m not up on the relevant literature, but I suspect the answer is that they probably don’t perform very well in an objective sense. However, what they can do is aggregate public perceptions well. So while Intrade can’t say that Hillary is truly more electable than Obama, it can (in the absence of manipulation, anyway) tell us pretty reliably that people think she’s more electable.

I don’t believe any of this enough to have blogged about it during the week. But weekends are a good time for miscellaneous speculation, and this seems to count. Make of it what you will.

TECHNICAL NOTE: If you’re wondering how the probabilities work, here’s the math. First:

P(election) = P(nomination) * P(election conditional on nomination)

In other words, if you have, say, a 50% chance of winning the nomination, and a 50% chance of winning the election once you’ve won the nomination, then your overall chance of winning the election is 25%. Now rearrange the equation to get:

P(election conditional on nomination) = P(election) / P(nomination)

So to get the probability of winning the election if you get the nomination, just divide the election probability by the nomination probability.