Friday, June 8, 2012

Quantitative Election Forecasts with Nate Silver

Nate Silver, an American statistician originally known for PECOTA (Baseball player performance forecast), has stepped into the realms of Quantitative Politics.

The accuracy of his November 2008 presidential election predictions—he correctly predicted the winner of 49 of the 50 states—won Silver further attention and commendation.

The Election Forecast Model

In the article Baseball Analyst Draws Fans by Crunching Election Numbers, Bialik mentions how Silver allocates varying weighting with respect to poll accuracy as predictive variables. At the same time he has added economic indicators into the mix, that an "economic index, which is scaled on a similar basis to gross domestic product and now reads at 2.2 percent, exerts a gravitational pull on the forecast." (FiveThirtyEight, NY Times) So according to his latest blog post, Obama has a slight lead in the presidential race.

How do we make a profit off this information?

Betting markets.
According to Intrade, the market implies 53.3% chance of Obama winning, at this point in time (June 8, 2012).
According to Betfair, the market implies 57.5% chance of Obama winning, at this point in time (June 8, 2012).

It's a potentially arbitrage opportunity, if the differential overcomes the transaction costs.

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