I wrote a piece recently about the link between the cost of an “Obama wins” futures contract on Intrade and Nate Silver’s 538 blog’s probability of an Obama victory. At the time, the two had converged almost perfectly. Since then, however, a gap has opened up between the two: Silver’s model now gives Obama a 70% chance of winning, but Intrade is down to a 57% chance (and, interestingly enough, Intrade has gone down 3% since Obama “won” last night’s debate.)
A reader also noticed this divergence and emailed me with three possibilities that could be explaining it:
1. The traders really aren’t paying attention that much attention to 538 and the recent congruence was just a fluke;
2. Romney supporters are deliberately trying to cause a run on Romney; or
3. Traders are buying into the Romney “momentum” idea and ignoring polling averages (which relates back to #1, but is a bit different in that they’re not ignoring 538, but they think things are going to change in the next two weeks).
Upon reading his email, my best guess was that the answer was #1, and that I had just picked a day that these two estimates (which are basically different ways of trying to uncover the same “true” reality) had randomly converged. Given the number of days in the months leading up to the election, it was probably inevitable these two estimates would converge at some point.
But then I saw this piece from Jonathan Chait. Chait claims:
In recent days, the vibe emanating from Mitt Romney’s campaign has grown downright giddy. Despite a lack of any evident positive momentum over the last week — indeed, in the face of a slight decline from its post-Denver high — the Romney camp is suddenly bursting with talk that it will not only win but win handily. (“We’re going to win,” said one of the former Massachusetts governor’s closest advisers. “Seriously, 305 electoral votes.”)
This is a bluff. Romney is carefully attempting to project an atmosphere of momentum, in the hopes of winning positive media coverage and, thus, creating a self-fulfilling prophecy.
Now, I have no idea if Chait is correct. But if he is correct, then it seems that flooding the Intrade market with cheap futures contracts on an Obama victory would be an incredibly cost-efficient way to continue to fead a narrative of Romney gaining momentum. From eyeballing the chart on Intrade, it looks like the number of contracts changing hands daily is in the thousands, not the tens of thousands. So this seems like something that is doable, although I wonder whether it would be traceable?
Again, I have no evidence at all that this is occurring. But the idea is intriguing. For you campaign advertising people out there: at what level of exposure would this kind of “buy” be worthwhile? The following data from Google Trends certainly suggests that more people pay attention to Intrade during US presidential elections, which suggests at least some payoff to trying to have a positive narrative coming out of the Intrade data:
[Cross-posted at The Monkey Cage]