US Presidential Election: a quick and rough guide to polls and other forecasts
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1 GI Research Market Commentary US Presidential Election: a quick and rough guide to polls and other forecasts Over the next weeks, and especially after Labor day (September 5 th ) presidential candidates are expected to flesh out their programs and to appears in the televised debates. This will put electoral predictions even more in the spotlight. The likely flood of polls, conducted using widely different methodologies may be ultimately very confusing. In what follows we provide a quick (and hopefully useful) overview of the most important sources of predictions. We focus on the presidential election, even though polls for the partial election of the Senate and the House of representative abound. Needless to say, polls have to be treated with extreme caution, all the more so considering how abysmally all prediction methods performed in the recent UK referendum. Moreover this presidential election has several unique features that make traditional forecasting method less reliable. Beyond the peculiarities of the Republican candidate and his program, it is important to recall that both candidates are overall little liked by the electorate, and the deep effect the financial crisis has had on popular attitude towards politics and politicians. Moreover, in the two months or so before the election day several game-changing events may occur, from the disclosure of embarrassing information on the candidates to events like a terrorist attack. Polls Electoral polls are published almost daily, and their frequency is going to increase in the run up to the vote. However, they differ widely in terms of methodological choices, such as the size of the sample, the type of voters polled (likely versus registered voters, fixed or alternate sample) or the way questions are asked. Averaging them is a simple way to try to get an overall trend. The Real Clear Politics website, among many, lists all the polls, produces an average of the predictions for popular vote (excluding outliers and weighting for the size of the sample) and derives from it a distribution of the state votes going to each candidate. This serves for as the basis for deriving the subjective likelihood of the final outcome (Republican, Democratic or too close to call) in each state.
2 Source: Real Clear Politics. Dowloaded on August 24 Another way to filter out information from the polls is to convert them in into the probablity of a candidate being elected. The very popular Five Thirty Eight blog uses mostly state-level polls, resorting to nationwide ones to adjust broader trends. They rely on a statistical model which weight each poll by its sample size, how recently it was conducted, and the historical accuracy and methodology of the polling firm. Polls from institutions with a short track record or commissioned by partisan institutions are not used. The model then adjusts each poll based on other factors, such as the bounce candidates receive after the party conventions and the trend from past editions of the same poll. They are then blended with past elections results and demographics, to provide an estimate of which candidate will win a state s delegates. The model including
3 all the states is then simulated 20,000 times. In each of them, the analyst forecasts the outcome in every state and note the number of electoral votes each candidate wins. That gives a distribution for each candidate. The procedure is repeated after a new poll is published, delivering an update of the probabilities. Two additional forecasts are provided, one which includes the impact of economic factors like state level employment and another with the probability based on just the polls, without any adjustments. Source: FiveThirtyEight. Dowloaded on August 24 The New York Times The Upshot blog uses a similar methodology. State-level polls are combined using a statistical model which delivers a for each state and candidate a probability distribution. Then all the possible outcomes are put together to derive a probability distribution of the final outcome. The model
4 also prodives a count of the all possible ways (i.e combination of states) in which a candidate can win, considering which states are, according to the polls, safely in each candidate s control and those where the margin is very narrow. The chart below describes a scenario in which in ten states the race is too close to call and lists out all the possible developments, and the final outcome. The chart shows that if Trump wins in Florida, Pennsylvania and Ohio, a victory by the Democratic candidate in Georgia and North Carolina would secure her the election, regardless of what happens in the remaining states. on August 24 Source: NYT s The Upshot. Dowloaded Prediction markets Another way of predicting the outcome is looking at where money is put, i.e. considering the prediction markets. Traders can buy and sell real-money contracts based on their belief about the outcome of the election. Flows determine the price of a contract at any given time, which is the forecast of the outcome. Most websites where sport bets are taken offer the possibility to put money on the election. The most popular not for profit project is the Iowa electronic Markets, maintained by the University of Iowa. It allows students from over 100 universities to invest real money (up to $500) and to trade in a variety of contracts, including those on the share of popular vote in the presidential election and its winner.
5 Source:. Other models Other forecasters, mainly political scientist form academia, use statistical models, whereby the electoral outcome (normally the share of popular vote) is predicted using hard information such as economic and demographic data and past electoral results One of the most famous one, with a very good track record, is Larry Sabato's Crystall Ball, from the University of Virginia. It takes a holistic approach, combining, model based forecasts with polls and qualitative assessment and rate the probability of a candidate victory in each state.
6 In order to decide which method is the most reliable a quick gauge is past performance, with all the caveats due to the peculiarity of this elections. In this respect FiveThirtyEight and the Crystal Ball stand out. In the 2012 election the model employed by former predicted correctly the outcome of all the 50 states, while the latter correctly predicted the results of 48 states and beat all the other forecasters in the share of popular vote. Prediction markets assume that punters use efficiently all the available information, but this wisdom of the crowds can get it spectacularly wrong sometimes. Famously, in the day of the Brexit referendum bets priced an 85% likelihood that Britain would stay in the EU. This can be due to psychological biases that lead people to underestimate tail events (like the election of an extremist candidate, for example) or to place a bigger faith into the most recent polls. Another explanation is that implicit probabilities were skewed towards the Remain by a small number of big bets by pro-eu voters, who tended to be richer than those who supported leave. Given the similarities between the Trump electoral base and that of the Leave supporters, this could happen again. While reiterating the advice to take all electoral predictions with a big pinch of salt, we would recommend to give a bit more of credit to approaches like the ones used by FiveThirtyeight or the Upshot, as they fully and accurately exploit the information coming from polls. Moreover, and crucially, their probabilistic approach embeds the uncertainty related to all polls (whose historical track record is used as an input to the forecast). Finally, they provide full description of the scenarios that may lead to the final outcome of the election and assess their likelihood. Author: Zanghieri Paolo
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