smart money on Kerry

I received the following article in my email today, sent by the author, Andrew Sprung:

Another look at Tradesports by an anxious voter:

State-by-State, "The Wisdom of Crowds" Lays Odds on Kerry

The smart money says Kerry will win the 2004 election.

That money is laid down by those who legally bet on the election outcome at "futures trading" websites such as Iowa Electronic Markets (IEM) and Tradesports.com. IEM, it is often pointed out, has a better 12-year track record than the brand name polls in predicting the outcome of presidential elections. As James Surowiecki, economics writer for The New Yorker and author The Wisdom of Crowds, has pointed out, the aggregate wisdom of people who put their money where their mouth is arguably the best predictive tool known to humanity.

At first glance, the current top-line data from both IEM and Tradesports tell us merely what we already know -- that the race is too close to call. As of Aug. 12, IEM has the odds all but dead even -- the price of a "future" is $.51 for Bush, $.50 for Kerry. Tradesports.com also quotes virtually even odds: the Aug. 12 "bid" on Bush reelection is 50.2, while the "ask" is 51.0

But the Tradesports' market for state-by-state Electoral College outcomes tells a different story. If one assumes that bettors know their home states (or those they choose to bet on) best, it looks like Kerry has a "future."

If Bush wins every state in which Tradesports "investors" give him at least a marginal edge, he will win, with 274 electoral votes to Kerry's 264. But the incumbent has an uphill struggle in the states viewed as most competitive by Tradesports bettors.

Tradesports' current odds place only seven states within a 60-40 range. Call them the "hot" battleground states. Of those, five states with a combined 68 electoral votes -- Florida, Missouri, Nevada, Ohio and West Virginia -- are currently in Bush's column. Only two states favoring Kerry -- Wisconsin and New Hampshire, good for 14 votes -- show hot battleground odds.

If we define odds of better than 60-40 as reasonably firm support, then Bush's firm support adds up to 206 electoral votes -- and Kerry's to 250.

The odds, moreover, are firmer on average in Kerry's hot battleground states than in Bush's. Here are the bid-ask prices on a Bush victory in the seven states in question:

State	Bid	Ask	Electoral Votes
Ohio	56.0	58.8	20
Nevada	56.3	56.9	5
Missouri	55.0	57.1	11
West Virginia	50.1	54.7	5
Florida	49.2	51.1	27
Wisconsin	43.5	48.0	10
New Hampshire	38.6	43.0	4

Taking the mean in each case between bid and ask, Bush's odds in Kerry's two "hot battleground" states average to 43 -- seven points below even. In contrast, the President's odds in his own five HBs average to 54.5 -- just five and a half points above even. His 68 "hot battleground" votes are more in play than Kerry's 14.

The odds in Kerry's favor look even stronger in light of Tradesports' bettors' apparent assumption that "a tie goes to the incumbent." According to battleground state polling by Zogby International posted on the Wall Street Journal Online, Kerry is ahead in three of the states -- Missouri, West Virginia and Florida -- in which Tradesportsmen are still laying odds on Bush. In other words, Kerry is running ahead on a field that bettors have very rationally tilted slightly toward the incumbent.

Current results, of course, are no guarantee of future performance. But right now Surowiecki's "wisdom of crowds" points toward Kerry.

Andrew Sprung
sprung4@eclipse.net