Bye-bye to the bounce?
Posted: Friday, September 05, 2008 7:26 PM by Alan Boyle
Jae C. Hong / AP
Delegates are showered with balloons after John McCain's acceptance speech
during the Republican National Convention in St. Paul, Minn., on Thursday.
|
Republican presidential candidate John McCain didn't benefit from that big of a bounce today in the post-convention prediction markets. Then again, Democratic rival Barack Obama didn't get much of a bounce from his party's convention last week, either.
In fact, the idea that political conventions produce an upward "bounce" of popularity doesn't really apply to the prediction markets, and economists think they know why.
By the way, McCain's surprise selection of Alaska Gov. Sarah Palin to be his running mate didn't move the markets either, for different reasons.
The no-bounce campaign
Prediction markets represent an attempt to bring the dismal science of economics into the political sphere: Instead of relying on polls of representative voter samples, the markets simply provide an online method for buying and selling "stock" in various candidates of political propositions. (Similar markets have been set up for contests ranging from the Super Bowl to the Oscars race, by the way).
The Iowa Electronic Markets have offered real-money trading in political futures since the Bush-Dukakis campaign of 1988. Over the past 20 years, the IEM has been at least as accurate as political polls when it comes to picking the winners.
Here's how the system works: If you think McCain will win, based on his showing at this week's convention, you could plunk down up to $500 to buy shares that fluctuate based on his fortunes. The shares pay off at $1 each if McCain wins in November, but become worthless if he loses.
As of 5 p.m. ET today, McCain's shares were trading at 41.3 cents, which means the traders' consensus view is that McCain has a 41.3 percent chance of beating Obama. On the other hand, Obama's shares were valued at 59 cents - meaning that the Democrat is still the strong favorite, at least as far as the market is concerned.
The funny thing is that those values on the IEM have been basically unchanged (with one exception, detailed below) since Aug. 25, the day the Democratic convention opened. That runs counter to the conventional (heh, heh) wisdom that candidates enjoy a surge of popularity after their turn in the national spotlight.
"If you look at the prediction markets, it's been the most boring two weeks of the campaign," said Justin Wolfers, an economist at the University of Pennsylvania's Wharton School who has studied the dynamics of such markets for years.
This year isn't unusual in that respect. The IEM has never seen a post-convention bounce in the 20 years that it's been gathering statistics, said Tom Snee, a spokesman for the University of Iowa's Tippie College of Business.
"We speculate that's because the people on the IEM are really into politics, and they can see through a lot of the rhetoric and the stagecraft," Snee told me. "They look for substance - and there's not a lot of substance anymore at these things."
Obama's stock actually saw a significant but short-lived dip during the Democratic convention. That left the IEM's economists scratching their heads, but they did find that the dip correlated rumblings that Hillary Clinton's supporters might rebel against the presumed nominee. (Here's a pre-convention report that hinted as much.) Once Clinton gave her strong support to Obama, the downward plunge was reversed.
On InTrade's prediction market, there has been more of a bounce: Obama's shares have moved up and down, going from a little more than 58 cents on Aug. 23 to almost 62 cents on Wednesday, then dropping to today's closing price of 55.5 cents. As you'd expect, McCain's trend line went down (to 36 cents last week), then up (to 43 cents today). But in the grand scheme of things, not much has changed.
Wolfers' hunch is that traders generally discount the upward swings in the post-convention polls as being in line with expectations - just as traders on the stock market would shrug off expected good news about a company's quarterly earnings. "We think that financial markets are forward-looking in a way that political polls are not," he told me.
Standing pat on Palin
The current price stability doesn't mean the traders are frozen in place. So if the conventions' glare doesn't move the market much, what does?
"News," Snee answered. "News is really the big thing that moves it."
He pointed to the example of fallen Democratic hopeful John Edwards: When word got out that his wife had cancer, his shares fell from 7 cents to 2 cents. And when he announced that he wasn't quitting the race because of it, the shares rose to 11 cents - but then eventually settled back to 7 cents. Of course, now his shares aren't worth the paper they weren't printed on.
So wouldn't you think Palin's debut as McCain's vice-presidential pick would shake up the market? Neither her surprise selection, nor the reports about her political baggage, nor her raucously received convention speech made any difference in the GOP price levels.
"Apparently the traders didn't think it would help or hurt," Snee said.
Wolfers noted that there were wild swings last week in the prediction markets for GOP vice-presidential candidates (would it be Tim Pawlenty? Mitt Romney? Tom Ridge? Sarah Palin?!), but those swings had zero impact on the presidential prognosis.
"I think the most obvious inference from this is that no one thinks the VP matters," Wolfers said.
(After the Palin pick was announced, InTrade set up shares for "investing" in the chance that she'd be withdrawn as the GOP vice-presidential nominee. A couple of days ago, the stock was trading as high as 19 cents, but today it was in the 7-cent range.)
Maybe it's time to wave bye-bye to the bounce: Even political insiders are focusing less on the post-convention poll numbers and more on the complex perceptions hidden within those numbers - perceptions that could eventually affect political strategies as well as the marketplace.
The interpretation of those polls over the coming days could well make a difference, even in the prediction markets. "It's absolutely possible for the wonks who are trading to not be able to read Joe Six-Pack," Wolfers said.
Unless something unexpected emerges, the next big opportunity for a move in the market will come during the debates, which open with an Obama-McCain faceoff on Sept. 26. If nothing happens to change the equation, the Democrats will likely retain their market edge. But if McCain or Palin score points, watch how the traders react.
Speaking out on science
Speaking of debates, ScienceDebate 2008 is still working to shed more of the spotlight on issues that have a scientific or technological twist. We're not just talking about the outrageous price of lab helium here, but about concerns ranging from climate change to international competitiveness, from fuel cells to stem cells.
ScienceDebate 2008's organizers couldn't get the candidates together to talk about such issues during the presidential primary season, but in July they offered up 14 questions for would-be presidents to answer. (Scientists and Engineers for America have drawn up a seven-question version for congressional candidates.)
A week ago, ScienceDebate 2008 announced that Obama had sent in his answers to the questions.
"Most of America's major unsolved challenges revolve around these 14 questions," ScienceDebate2008's chief executive officer, Shawn Otto, said in a news release. "To move America forward, the next president needs a substantive plan for tackling them going in, and voters deserve to know what that plan is. We're pleased that Senator Obama has provided voters with that substantive plan, and we're hoping for similarly thoughtful responses from Senator McCain."
In his response, Obama said "ensuring that the U.S. continues to lead the world in science and technology will be a central priority for my administration."
Obama talked about expanding scholarship programs to beef up teaching resources in high-need schools; encouraging reductions in carbon emissions through a market-based, cap-and-trade system; increasing federal spending on energy research and development; boosting support for embryonic stem-cell research; and much, much more.
McCain - or members of his campaign staff - could no doubt send ScienceDebate 2008 a similarly detailed case for his science and technology policies by distilling all the statements he has already made on such issues. So why haven't they done so already?
Update for 7:30 a.m. ET Sept. 8: McCain's shares did post a 4.5-cent day-to-day uptick on the IEM in the latest trade on Sunday night, based on the daily price chart. The average price showed a 1.3-cent rise, so that would qualify as a bounce. The message to be drawn from that could be that traders saw something in the post-convention enthusiasm worth acting on. But the rise was nowhere near the kinds of jumps that were reported by traditional polls, first for Obama, and now for McCain.
As of late Sunday night, Obama's shares were valued at 56 cents, and McCain's were at 44 cents in the winner-take-all market. In the vote-share market, traders try to figure out how much of the vote the Republicans and the Democrats will get: In the day's final trade, The Democrats' projected share was 52.2, and the Republicans' share was 46.5. Because these are all separate trading propositions, the totals don't necessarily add up to 100 percent.
Check out msnbc.com's Politics section and the First Read blog for more on the presidential race.
