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Predicting the Outcome of an Election Social Education 80(5), pp 260–262 ©2016 National Council for the Social Studies Predicting the Outcome of an Election Social Education staff Part of the excitement of the period immediately preceding an election lies in keep- a candidate by selling shares that were ing track of the different predictions. There are a variety of ways of predicting the bought at a lower price when the candi- winner of a presidential election, and it can be revealing to examine the accuracy date’s chances were rated low). of prediction systems after the election. Once their own money is at stake, people are considered likely to follow One predictive system with which as reflecting the collective wisdom of a their self-interest by being careful with readers of Social Education have wide range of people who are willing to their research and by examining a wide become familiar is the “Keys to the risk their own money on the outcome range of information. Although different White House” developed by historian of a contest. people will reach different conclusions Allan J. Lichtman and mathematician Prediction markets set odds for or and make different bets, the prediction Vladimir Keilis-Borok (see the previ- against each outcome, based on the way markets aggregate the range of available ous article). The thirteen Keys are of that participants choose to invest their information into a collective projection great interest for studying the success money. Participants can thus calculate of the likely result of the contest. or failure of presidential terms and the return they will receive for a suc- David Rothschild, an economist at the outcome of presidential elections. cessful investment. For example, trad- Microsoft Research, runs a useful site They cover a wide range of political, ers in the Iowa Electronic Markets, a that surveys these prediction markets economic, and social factors. As of the highly regarded market operated by the and aggregates the data to calculate each time of going to press, they favored a University of Iowa’s Tippie College of candidate’s likelihood of victory data: Republican presidential candidate Business, are offered a dollar for a cor- http://predictwise.com/. Although the (although, as Lichtman points out, rect prediction of the presidential can- site also examines opinion polls and they are meant to predict the outcomes didate who will win the popular vote. other data, it states that “the backbone of elections contested by generic As of October 2, 2016, it cost 72.4 cents of [its] predictions … are market-based, Republican and Democratic candidates, to place a bet on Hillary Clinton in this generated from real-money markets that and Lichtman casts doubt on whether market, but only 27.6 cents to place a trade contracts on upcoming events.” Donald Trump fits the profile of a bet on Donald Trump, indicating that Among the markets that the site moni- generic Republican candidate.) the odds of a Democratic victory were tors are Betfair, the world’s largest In the build-up to the presidential much greater than those of a Republican Internet betting exchange, headquar- and congressional elections, other victory. (The Iowa Electronic Market is tered in the U.K. (this exchange is legal prediction systems will also be in the legal in the United States because it has in many countries, though it is illegal for news. Here is a guide to three of them: been established for academic purposes a U.S. resident to bet money on Betfair); forecasts based on prediction markets and the amounts of money involved are the Iowa Electronics Market; PredictIt, (a predictive system of great interest small.) which is a New Zealand-based exchange to economists); predictions based on Some betting markets offer “shares” in operated by Victoria University of economic indicators; and predictions a candidate that are comparable to shares Wellington, and is allowed, like the based on opinion polls. traded on the stock exchange. The price Iowa Electronics Market, to operate a of shares is cheap if a candidate’s chances legal prediction market in which U.S. Prediction Markets are rated as low, but it increases when a citizens can participate; and Hypermind, The forecasts of prediction markets are candidate’s chances improve (on these a U.K.-based site that offers prizes and based on “real money” or betting mar- markets, it is possible to convert shares tries to involve skilled traders. kets, and are of great interest to many into cash before the election takes place, Real-money markets have a strong economists, who interpret the markets and an investor can cash in on the rise of track record of predicting a winner Social Education 260 These charts from the Iowa Electronic Markets website record the market’s ongoing forecasts of the chances of a Democratic presidential election victory (blue line) compared to a Republican victory (red line) since early 2015. immediately before the date of an elec- low price of gas is more favorable to September 2016 indicated that the eco- tion, but performed badly earlier this the Democratic candidate than an eco- nomic trends supporting this projection summer in predicting the results of the nomic projection that emphasizes the were still intact. British referendum on whether Britain importance of rapid economic growth, A different economic projection should leave the European Union. because gas prices have been very low has been made by Ray C. Fair, a Yale Whether they have the ability to pre- during the second Obama term, but University economics professor, who dict the winner of a closely contested growth in GDP per capita has been slow. has developed a system that has pre- election well ahead of the election date One economic projection system with dicted the popular vote accurately is open to question. a successful past record is the Moody’s in seven of the last nine presidential As of September 25, 2016, the day Analytics election model. Its economic elections, and forecasts a Republican before the first Presidential debate, components focus on three variables victory this year. In addition to politi- the PredictWise site estimated a 70% that are a part of the everyday lives cal variables, it includes economic chance of a Clinton victory, and a of Americans—home prices, income variables that place great weight on a 30% chance of a Trump victory. On growth, and gas prices. Its predictions strong growth rate in GDP, rather than October 2, six days after the debate, at the end of September 2016 pointed the modest growth rate of the past four the site estimated Clinton’s chances at firmly to a Democratic success in the years. The model is an equation that 79% and Trump’s at 21%, indicating a presidential election (https://www. predicts the Democratic share of the belief by the markets that the debate economy.com/dismal/topics/election- two-party presidential vote. Professor had improved Clinton’s prospects. The model). Fair presents recent information on site also offers predictions of the con- A projection system that uses dif- key indicators that enables users of his test for control of the Senate and the ferent indicators but makes a similar website to make up-to-date projections House of Representatives. forecast was presented to readers of interactively at https://fairmodel.econ. Social Education in the March-April yale.edu/vote2016/index2.htm. Economic Indicators issue this year by M. Scott Niederjohn, It is conceivable that new economic One belief held widely by both the gen- J.R. Clark, and Ashley S. Harrison.1 data might impact the election late in eral public and by political campaigners The authors cited the past accuracy of the day. A variety of economic projec- is that the state of the economy is the a system based on two major indicators, tions can be accessed online up to the most important single factor influencing the change in the real growth rate in date of the election through a search the outcome of an election. Although Gross Domestic Product (GDP) during engine using the string “economic” most economists who project the out- a presidential term and the change in “prediction” “election” “2016”. come of an election acknowledge that the misery index proposed by econo- non-economic factors can also be mist Arthur Okun, which consists of the Predictions Based on Opinion important, their predictions are based unemployment rate plus the inflation Polls on a belief that people will “vote their rate. Their analysis in March indicated The predictions that are most familiar pocket books.” that the odds were favorable for the to the public are those made by opin- There are many different economic Democrats to retain the White House ion polls. These polls often differ from indicators that can be used in projec- because the misery index has fallen as a each other, so sites that aggregate and tions, and they do not necessarily all result of lower unemployment and low average them are very useful at iden- point in the same direction. For exam- inflation, while real GDP has grown tifying general trends. Aggregate sites ple, in 2016, an economic prediction during the current presidential term. A include the HuffPost Pollster (http:// that places great weight on the unusually review by the Social Education staff in elections.huffingtonpost.com/pollster) October 2016 261 and RealClear Politics (www.realclear- fifty states and the District of Columbia. Democratic candidate, Hillary Clinton. politics.com). The site www.fivethir- His website (now owned by ESPN with The “Now-cast” estimated her chances tyeight.com (named after the 538 votes Silver as Editor-in-Chief) estimates the of winning the election at 72.8%, com- in the Electoral College) offers regularly probability of victory for each side in pared to Donald Trump’s chances of updated predictions for the presidential sports events as well as politics.
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