Tuesday, November 25, 2008

Prediction markets triumph over polls and pundits

again in 2008:
We debated the merits of collective wisdom earlier this year, after the bettors in the the Intrade online prediction market wrongly picked Barack Obama to win the New Hampshire primary. The bettors are looking more savvy now that the election’s over and the last undecided state, Missouri, has finally been called for John McCain. Once again, collective wisdom backed by cash has triumphed over conventional wisdom — at least when you compare the Intrade bettors with some of the pundits who get paid to make predictions.

The Intrade bettors expected Mr. Obama to end up with 364 votes in the Electoral College — one less than he actually got. None of the pundits came so close. Alan Abramowitz, a political scientist at Emory, came closest with prediction of 361; all the rest were off by at least 12 votes. Nate Silver, the much-talked-about statistician at FiveThirtyEight.com, underestimated Mr. Obama’s tally by 18 votes. Many of the pundits underestimated Mr. Obama’s total by more than 25 votes, like Chris Matthews, Arianna Huffington, and the strategists Paul Begala, James Carville and Alex Castellanos.

As you can see from these maps comparing Intrade predictions with the results, the Intrade bettors didn’t do as well as in 2004, when they called every state correctly. This time they wrongly called Indiana for Mr. McCain and Missouri for Mr. Obama — mistakes that canceled each other because each state has 11 votes. The Intrade bettors ended up one vote off because Mr. Obama collected one of Nebraska’s five votes.

Here is my work from the primaries, between Zogby and Intrade predictions. I've even seen it cited in major media outlets.

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