Taking Stock
September 5th, 2008On the off chance you hadn’t heard (or don’t live in the U.S.), John McCain is delivering his acceptance speech tonight to the Republican National Convention. This marks the end of the convention and since the Democrats already had theirs, the race to the presidency begins tonight.
So who’s going to win? It’s a question a lot of people want to know the answer to - especially political junkies such as myself. If you look at the polls, it’s been fairly tight for about the last 9 months, with Obama leading a bit more often than McCain and often by a bit more. Right now Obama is leading McCain by about 4.5%, which is fairly typical. Counting a rough estimate of statistical error, that means Obama currently has a definite lead of 1-2%; A tight race, but a slight edge for Obama. However, if you paid attention to the polls, they fluctuated a lot with the latest news, oil price, conventions, etc. Can we get a more solid prediction for the future than this?
The last time I blogged about the election (in early March) I made an argument based on demographics that Clinton would beat McCain and McCain would beat Obama. My reasoning there is that your average voter, demographically speaking, has more in common with Clinton than McCain (mainly due to her age and gender), and has more in common with McCain than Obama (Americans lean conservative, and many more are white, obviously). I backed this up with census figures.
And I still stand by that assessment. Now that the Democratic primary has shaken out and Obama is the victor, my prediction was that McCain would beat Obama. As before, though, this is a weaker prediction than Clinton vs. McCain (which I think she would win). The argument here is that your average voter often votes in a quick and instinctual way. This sometimes entails voting about one issue like abortion or gun control or voting on the basis of a politician’s character.
In my reading on the subject I’ve found that people generally judge more attractive people as having more character. Modern politicians have figured that out long ago, though, so this is mostly a non-issue. As far as single issue politics go, at the national level that is largely determined by which party a politician belongs to. So while that matters, I think the effect of that has already come out, for the most part.
Which leaves demographics. If you don’t have a lot of time to vet a politician, or don’t care to - as I argue many voters do not - then I think demographics would be a decisive factor in the election. Your average American (especially among likely voters) is closer to McCain in race and is more likely to identify with his conservative values than with Obama. However, Obama is more religious and closer in age to your average voter. Still, I think race and political affiliation will trump age and religion. It should be no surprise that Joe Biden helps out Obama in the race department, and Sarah Palin helps out McCain in the age, religion, and gender departments. Despite Palin probably being a risky choice, I think that makes the race closer than it would otherwise have been, at least on the demographic front.
Considering all this, if you make up your mind who to vote for quickly, one of the main ways you’re likely to do so is by considering how much you identify with them; i.e. how much they are like yourself. In this case, I see a slight edge for McCain, though with the latest vice president maneuverings it may be close to call. (It can’t help that even though people lean conservative, they identify less with the Republican party and its politicians these days than the Democrats. Then again, McCain is more popular than his party at large.)
For a more objective opinion, what does Intrade, a prediction market website, think? First of all, it says that both Obama and McCain are underdog candidates. Only since the beginning of 2008 have they really been looking like winners. (McCain was riding high in late ‘06, though.)
McCain almost went bankrupt and Obama took on the heavily favored and formidable Clinton political machine, so being underdogs in the Intrade market is no surprise. Thus, you can’t say that either is a heavy favorite or that they look “inevitable” on that score. However, as you can see, Intrade has been split 60-40 in favor of Obama for months. That means that, as before, I’ve backed a “losing horse”. (At least he has plenty of money this time.)
On the flip side, that means I think McCain is an especially good bet, given those odds. One thing you would expect would make a bigger difference is the conventions and the VPs. But Intrade hasn’t been moved too much by any of that (all that news has happened recently). So it doesn’t seem like any of it was a real game changer, even McCain’s surprise nomination of the relatively unknown Sarah Palin, who is seen by many as risky and perhaps ill-considered, especially given McCain’s age.
It seems like Intrade markets base their predictions on other factors, as do I. I’ve already made my bet: using Intrade’s play money site (which largely tracks the main site), I rolled nearly all my winnings (~$2,000) and my starting capital ($5,000) into a bet on McCain to win the presidency. (I only made a bet for about $2,000, but the rest is tied up in margin.) Since the McCain contract was (and is) trading at 40, it seemed like a deal to me. It would’ve been a a greater deal when McCain was trading closer to 35, but most of my money has been tied up in the Democratic nominee race, which wasn’t wrapped up until Aug. 31st for some weird reason (and if I sold early I would have given up a fair chunk of profit). But I digress.
To finish things up, I’d like to talk about something a little more certain. Intrade has definitely improved the interface since I last posted. While the site itself has hardly changed, an all-new version, Intrade.net, is currently in beta. The new site makes it a lot easier to trade and see what’s going on in markets. The old site had prices that weren’t intuitive, and combined with margins and trying to figure out whether you wanted to buy or sell a contract to get what you wanted, it could be a little confusing.
In particular, with the site revamp there’s a few things I’d like to see them do better. There’s some little “gotchas” like fees for holding a contract when it closes (despite the fact you’re making the market here) and some markets not trading very much, which can distort the price. I hope they explain and show this more on the new site. Also, the market clearing price may not be near what most people are selling for. Sometimes there’s a lot of “action” available around the market price, and sometimes only a few people are trading near there. Like the “last sold” price Intrade uses as a benchmark, this can easily be missed. Let’s hope the new site is more transparent on that score, especially on the trading pages themselves, where it’s the most important and people are most likely to see it.
Now if you’ll excuse me, I’m off to watch McCain’s speech. (I wrote this post a fair bit before I got a chance to revise and post it.) I’ve heard he’s not the most eloquent speaker, but I need to see how my bet is panning out. I haven’t lost one yet. *knocks on wood*
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