For the first round of my 2020 Prediction Contest, we had an amazing 98-entry turnout (93 of whom revealed themselves publicly and are prize-eligible). Thank you to all who entered, and best of luck! You can view everyone’s entries here (some typo correction was required to fix where people left off a minus sign or other mistake here and there; raw entries are here).

Contest Entrants Think Trump is Going to Lose

Of the 98 entries, only six said that the Democratic candidate was under 50c to win the presidency. In fact, the median predicted probability for the Democratic candidate (hereafter Biden, for brevity) among contest entrants was 87%; notably, the median probability given by the models out there is also 87% (though Nate Silver has yet to release his and based on his fights with G. Elliott Morris it’s probably not going to come in very high).

This confidence in Biden (he is “Likely” to win the presidency, in the parlance of verbal handicappers) isn’t shared by the markets. Both BetFair and PredictIt price Joe in the low 60s, suggesting that the presidency “Leans” Biden (the price ranges on PI depending on the market you’re looking at). Even Silver thinks that’s too low: “I don’t think people realize how dumb and sometimes even irrational the prices are at political betting markets as compared to almost every other type of market (which is not to say other markets are always rational, either).” and “Too low on Biden.”

He’s right! And he’s right to note in that thread that often the highest-profile markets are the most mispriced. Let’s talk about it.

The Markets Are Wrong in Two Ways

1. Joe Biden is underpriced (by at least 10-15c).
2. The markets are inconsistent, often wildly.

And it’s this second error that’s the most interesting to me. We know, for instance, that one of the reasons Trump trades higher in the main USPREZ market is that that’s the first place casuals go to plunk their money down on their man (and there are more Trump bettors than there are Joe bettors).

Yet the markets also have Biden comfortably ahead in MI (75), WI (70), and PA (73) which Trump needs to win to have any chance. These numbers are all still underpriced according to the models we have, but they nonetheless imply a higher win probability for Joe than do the main markets. Other markets have even more striking discrepancies: the electoral college market has Biden winning the EC 75% of the time! The popular vote market has Biden getting more than 4.5% (enough to win 95% of the time) at 71c!

In the latter two cases, some of that is internal overpricing (the markets add up to way over 100c) caused by long-shot bias, dart-throwing, and market making overwhelming the neg-riskers. Still, it’s notable that people are willing to pay something like 9c that Biden wins Alabama (lol) while others are willing to pay 7c that Trump wins California (looool). Even aside from the long-shot biased states, Biden is worth well over 60c overall based on his price in MI/WI/PA/FL/NC/AZ. So what happens next?

Something to watch over the coming weeks, particularly with the back-to-back conventions, is whether Biden’s overall win odds increase or whether the state markets simply get Trumpier. My intuition is the latter (already, the price in places like FL/IA/GA has moved about 4c to Trump this week despite moving only 1-2 points his way in the models) as dumb money begins venturing out from the main attraction. Anyone who saw 85c Clinton in California in 2016 knows that things can always get stupider…

Contest Entrants Were More Comfortable with the Main States

When you look at the range of predictions for MoVs for a given state, a tighter range indicates that most of the entrants have a good idea what a particular state will be. Georgia, for example, has a reasonably tight spread. People know that Georgia is going to be close.

Sure you have one person firing a +10 for Joe in GA (@StockJabber, who made Blue Tsunami picks), but by and large everyone knows that GA is going to be within 5 points of a dead heat either way. Contrast that with ME-02:

Most of the points are clustered again from -5 to 5; yet there are quite a few that now extend further out. Overall, the district is still priced as a toss-up by contest entrants (as do the modelers, the markets, and the handicappers), but the spread suggests, to me, that a lot of entrants were simply guessing. ME-02 isn’t talked about as much as places like GA or TX or FL, it’s not something everyone knows the 2016 margin in off the top of their heads.

You can also see this if you compare forecasted national MoV and a given state’s MoV. In better known places, there’s a clear tight linear relationship between what someone said the national MoV would be and what they said the state MoV is. In the lesser known states, things are noisier.

What do I take away from this? Well, if the contest entrants (who are sharper in aggregate than the markets overall based on their pricing) are this uncorrelated for places like ME-02 and MT, then that’s where I’d expect to see softer pricing and nice opportunities in the next few months (and perhaps and especially on election night as well). Something to keep in mind…

More TK

There’s a lot more to say about the contest (including the winprob-MoV curves and how I’m imputing winprobs from verbal handicappers and so on) but this blog is already long enough so I’ll save some for later. In the meantime, check out this thread, and hope to see you all in the second contest in one month!