How Good Are Intrade Contracts As Predictors of Senate Election Results? A Look at 2008

A few days ago, I looked at how well Intrade contracts performed as predictors of the outcomes of races for the US Senate in 2006. You may recall that just before the elections, the Intrade contracts pointed to the victors in every Senate race. The same was true in 2008: the contract prices that I retrieved on 30 October pointed to the eventual victor in every race (assuming, as expected, that Al Franken is ultimately the winner).

But again, I wanted to examine how far in advance successful predictions could be made based upon these futures contracts. In early 2007, Colorado Sen. Wayne Allard announced his retirement. In May 2007 when I obtained my first information from Intrade, the contract was already indicated a Democratic victory. Ultimately, Mark Udall won this seat. At the end of August of 2007, Virginia Sen. John Warner told his constituents of his retirement. Within two weeks, former Governor Mark Warner announced his candidacy for the post. Intrade contract information obtained later that month indicated Mark Warner as the clear favorite, and he won election the following year. The third retirement announcement came from New Mexico’s Pete Domenici in early October in 2007. Congressman Tom Udall announced his candidacy almost immediately for the Democratic nomination and the state’s two Republican congresspersons did likewise for the nomination of their Party. By May of 2008, Udall’s ultimate victory was indicated by the pricing of Intrade contracts. At that same time, the Intrade numbers were suggesting the victory of former Governor Jeanne Shaheen over Sen. John Sununu in New Hampshire.

So, by May 2008, fully 6 months before Election Day, the ultimate winners were being “predicted” by the Intrade contracts. The other four Democratic pick-ups were not so indicated until much closer to the elections. By early October, Mark Begich’s win over Ted Stevens in Alaska, Jeff Merkley’s defeat of Gordon Smith, and Kay Hagan’s victory over Elizabeth Dole were indicated by the Intrade contracts. It wasn’t until a few days before the election that Al Franken’s (apparent) victory over Norm Coleman was indicated by the Intrade numbers.
Once again, all Senate races were could be correctly predicted by interpretation of these Intrade futures contracts, and most could be determined almost a month ahead of time. Unfortunately, I don’t have the appropriate information in order to compare the relative accuracy and timeliness of predictions based on the various polling that occurred in these two cycles. Hopefully, I’ll be able to obtain such data for the coming cycle. If anyone would like to help collect such information, I would welcome their assistance

How Good Are Intrade Contracts As Predictors of Senate Election Results? A look at 2006

The Intrade futures contracts on the outcomes of political events are one of the available metrics that can be used as predictors of elections. Intrade is a real money open market that has been in operation for several years. With respect to the US Senate, they offer contracts on all of the races and on several “derivatives”, such as Senate control after elections, the number of seats that a Political Party will control, and currently, the appointments that will follow recent or projected resignations. The contracts for the races are not based on the individual candidates, but rather on the Political Party that would prevail.

The use of real money futures markets began, as far as I know, with research at the University of Iowa – the Iowa Electronic Markets http://www.biz.uiowa.edu/iem/markets/. Beginning in 1988, their goal was to investigate the relative accuracy of predictions based on such markets as opposed to those based on polling data. Without going into details, there seems to be some evidence that futures markets provide very slightly better predictive ability. The Intrade market is completely independent of the University of Iowa market – it is a private entity.

I have monitored the Intrade contracts for US Senate races off and on since early 2006. How well did these contracts “predict” the outcomes of the US Senate races in the last two elections? This is the first of two posts in which I will examine the outcomes. Here I will examine the 2006 election cycle. Very shortly, I’ll look at last year’s results.

In 2006, the last time I obtained the numbers was on 2 November, five days before Election Day. The contract for Senate control was still firmly pointing to the Republican Party. However, in each of the individual races, the eventual winner was successfully predicted by the Intrade contracts. To refresh your memory, the 2006 election saw the Democrats pick up six Senate seats: Bob Casey, Jr. defeated incumbent Rick Santorum in Pennsylvania, Sherrod Brown defeated incumbent Mike DeWine in Ohio, Sheldon Whitehouse defeated incumbent Lincoln Chafee in Rhode Island, Jon Tester defeated incumbent Conrad Burns in Montana, Jim Webb defeated incumbent George Allen in Virginia, and Claire McCaskill defeated incumbent Jim Talent in Missouri.

I monitored the Intrade contracts two to three times per month starting in February 2006. At that point, these data were already indicating victories in Montana and Pennsylvania. The other four races gradually went in favor of the eventual winners. That took place in mid-April for Ohio, mid-July for Rhode Island, but not until November for Missouri and Virginia.

It may seem odd that all of the individual races were “predicted” correctly by the Intrade contract data, and the Democratic Party did take control, while the contract for “Senate control” still strongly indicated the Republican Party. For those well versed with statistical inference, this is not at all surprising. The best way to verbalize this is that while each of these six events (Democratic pick-ups) were favored, some were only very slightly favored, and the consensus was that it was unlikely that all six would go in favor of the Democratic candidates.