Monday, August 21, 2006

Polls vs. Information Markets

Back to the Lieberman issue, with some more from my enlightening conversation with AlanBStard I mentioned a few posts below:

AlanBStard: It is interesting that it's trading much closer than the PA Senate race, which polls indicate is getting very close. 6 point difference as of yesterday, and polls tend to skew toward Dems.
AlanBStard: Market didn't respond at all. I picked up a Santorum at 21.5 just for kicks.
Diem: poll bias?
AlanBStard: At times. Even if not, the difference is still approaching the margin of error, and Casey hasn't done much of note recently. Quinnipac's analysis that he was merely losing votes to the Greens doesn't make any sense whatsoever.

This got me thinking about the correlation between polls and zero sum contracts such as the ones offered at tradesports. Imagine two campaigns taking place, both with two candidates. In each the lead candidate is ahead by 55%. The difference between the two campaigns is that the election in the first is a day away, while the election in the second is six months away. Would they trade at the same price? No, we would be more confident in the first campaign’s expected outcome, and I would expect the price to trade at closer to $99 then $55, while in the first I would not be surprised if the contract traded closer to $55. A new confidence interval would be useful (aside from the typical +/- a small percentage). Purhaps that is what makes this style of information markets so attractive. Maybe this is very obvious to those who follow polls, it is new to me so I bring it up. An update on the race.

On to less important matters. More proof the Cards are going down. This from the most respected name in journalism (outside the daily show). If this doesnt move that contract nothing will.

If you’re looking for a good laugh check out Ozzie Guillen’s comments at Baseball Prospectus (this link does not require a subscription). This guy’s act is going to wear thin if they start losing.

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