Test for Prediction Markets: They Say Obama, but Polls Say It’s Tied

Fact: According to the latest Rasmussen poll released Saturday July 12, and promptly headlined by the Drudge Report, “The race for the White House is tied. The Rasmussen Reports daily Presidential Tracking Poll for Saturday shows Barack Obama and John McCain each attract 43% of the vote.” Newsweek is reporting a similar result in its own poll, with Obama moving down and McCain up (“Obama, McCain in Statistical Dead Heat“), and other polls increasingly show a similarly close race.

Analysis: I’ve been tracking the growing divide between two quite different methods purporting to offer statistical predictive analysis for the November presidential election. Polls are saying one thing, but Prediction Markets are saying another. 

Prediction Markets: Research and Limits

Fact: A story in Science Daily this week, “Election Forecasters Preparing For Historic Election,” relates the publication this month of the “assembled insights of prominent election forecasters in a special issue of the International Journal of Forecasting.” 

Analysis:  The journal articles are available here for download.  One of them, “Prediction Market Accuracy in the Long Run” (by Joyce E. Berg, Forrest D. Nelson, and Thomas A. Reitz from the University of Iowa’s Tippie College of Business), compares the presidential election forecasts produced from the granddaddy of them all, the Iowa Electronic Market (IEM), to “forecasts from an exhaustive body of opinion polls.”  Science Daily says they find that the IEM is “usually more accurate than the polls.”

If we extrapolate out, these election markets are special cases of prediction markets, and I’m always interested in those.